By: Staff Writer
February 03, Colombo (LNW): Sri Lanka’s finance company sector recorded a striking turnaround in 2025, emerging as one of the fastest-growing segments of the financial system amid a fragile but improving macroeconomic environment. Latest data released by the Central Bank of Sri Lanka (CBSL) show that total assets of licensed finance companies expanded by 44% year-on-year to Rs. 2.77 trillion as at end-December 2025, reflecting an aggressive push in lending activity and a gradual return of borrower confidence.
The sector’s loan book grew even faster, rising 56% to Rs. 2.22 trillion during the year, compared with much more subdued growth in 2024, when credit expansion was constrained by high interest rates, weak consumer demand and elevated credit risk. The sharp rebound in 2025 signals easing financial conditions, lower inflation and a revival in consumption-led borrowing, particularly in vehicle financing, personal loans and small enterprise credit.
Funding patterns also shifted significantly. While customer deposits rose a healthy 19.8% year-on-year to Rs. 1.26 trillion, borrowings surged by an extraordinary 178% to Rs. 849 billion. This contrasts sharply with 2024, when finance companies relied more heavily on deposits amid tighter wholesale funding conditions. The increased use of borrowings in 2025 suggests improved access to market funding and renewed confidence from institutional lenders, though it also raises questions about funding sustainability if market conditions tighten again.
Equity capital increased by a more modest 13.4% to Rs. 62.8 billion, indicating that balance sheet growth continued to outpace capital accumulation. While profitability improved, the slower pace of capital growth may prompt regulators to closely monitor capital adequacy as the sector expands.
Earnings performance strengthened in tandem with balance sheet growth. Net interest income rose 26% year-on-year to Rs. 185.1 billion in the nine months to end-December 2025, supported by higher loan volumes despite some moderation in interest margins compared with 2024. Non-interest income climbed 26.5% to Rs. 31.5 billion, reflecting improved fee income and recoveries. As a result, sector profits surged 45% to Rs. 61.5 billion, a sharp recovery from the weaker earnings environment seen in 2024.
Crucially, asset quality showed a marked improvement. Gross non-performing loans declined to 6.1% from 11.5% a year earlier, while net NPLs fell to 3.2% from 6.5%, highlighting the impact of stronger recoveries, loan restructurings and better credit underwriting. Returns also improved, with return on assets rising to 6.3% and return on equity climbing to 16.3%, up from 5.8% and 12.8% respectively in 2024.
The finance sector’s revival has broader economic implications. Increased lending is supporting consumption, trade and small-scale investment at a time when the economy is seeking durable growth momentum. However, the pace of expansion underscores the need for prudent risk management to avoid a repeat of past credit cycles that amplified economic stress.
