Credit card and gold pawning debt grows
View(s):Middle class (low and middle income) families and urban and rural poor households across the country have been struggling with severe economic hardships and most of them are living on borrowings after spending all their savings.
The income sources of 64 per cent of the households have been affected while 7 per cent lost their entire income up to now in the COVID-19 induced crisis, a research report by of the Faculty of Humanities and Social Sciences of the University of Ruhuna revealed.
Seven per cent of the households lost their income entirely while the income loss for the rest of the households is temporary, the report said.
Around 45 per cent of households are seeking financial support for loan repayment, redeeming mortgaged items, paying outstanding credit card balances and other bill payments.
The current debt moratorium introduced by the Central Bank for three months has lapsed and the liabilities will be accumulated and both borrower and the lending institution will be in trouble unless the borrower’s income sources are regained, a financial analyst said.
A large number of people went to pawning centres in banks and financial institutions in Colombo and the surburbs before the latest curfew to obtain gold-backed loans at reduced interest rates, several senior bank managers told the Business Times.
This rush for gold-backed loans was unprecedented in recent times, they said adding that the reason may be the high amount of Rs. 57,000 to 60,000 paid for a gold sovereign and the reduced interest rate of 10 per cent per annum.
The amount of money obtained by the public from gold jewellery pawning centres at commercial banks and financial institutions, in the past six months this year, aggregates to over Rs. 643 billion, official data showed.
At least one in four Sri Lankan credit card holders is grappling under a mountain of credit card debt which has risen to unbearable amounts making it difficult for them to repay with their meagre earnings, a recent research report of a banking sector professional group has revealed.
The Central Bank (CB) data indicates 41 per cent or around Rs. 15.7 billion payments of the total credit card transactions (value) of Rs 38.3 billion executed during 2Q 2020 had been defaulted. (BS)