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Sri Lanka banking sector expands  at a moderate pace 

Sri Lanka banking sector expanded at a moderate pace during 2021 compared to the last year and remained resilient with adequate capital and liquidity buffers, amidst strong challenges stemming from the COVID-19 pandemic and related macroeconomic issues, Central Bank report revealed  

Despite the continuation of debt moratoria for certain sectors and gradual lapses of the concessions introduced by the Central Bank, the banking sector was able to meet the minimum prudential requirements in terms of capital and liquidity. 

The banking sector continued to dominate the financial sector accounting for 63.3 per cent of total assets as at end 2021. Despite the challenging economic environment driven by the ongoing pandemic and macroeconomy related concerns, the banking sector maintained reasonable credit growth during 2021. 

Deposits remained the dominant source of funding, while a notable incline in rupee borrowings was observed during 2021. However, sourcing foreign borrowings from external sources was affected by sovereign rating downgrades. 

During 2021, the banking sector profitability improved considerably compared to the previous year due to notable increases in net interest income and non-interest income. Business Expansion: By end 2021, the banking sector comprised 30 banks, i.e., 24 Licensed Commercial Banks (LCBs), including 11 branches of foreign banks, and 6 Licensed Specialised Banks (LSBs). 

The banking sector continued with its intermediation role and expanded the banking network to facilitate financial inclusion. 

In 2021, with the restrictions on physically accessing banks due to the pandemic, most banks introduced technology based online products/services to customers to facilitate their banking needs.

 The banking sector asset base increased by Rs. 2.3 trillion during the year and surpassed Rs. 16.9 trillion by end 2021, recording a year-on-year growth of 15.4 per cent compared to 17.1 per cent growth reported as at end 2020. 

Such asset growth was mainly driven by loans and advances and investments. The growth in loans and advances increased from 11.9 per cent in 2020 to 15.3 per cent in 2021. 

Approximately, 92.2 per cent of the increase in the loan portfolio during 2021 was attributed to the increase in rupee loans. The increase in credit was diversified across the major sectors of the economy. In terms of products, overdrafts (40.7 per cent), pawning advances (21.5 per cent) and credit cards (12.6 per cent) reported high growth during 2021. 

Meanwhile, the year-onyear growth in investments decelerated from 40 per cent as at end 2020 to 16.4 per cent as at end 2021. The Held to Maturity (HTM) portfolio grew by 24.8 per cent during 2021 due to increased investments in Treasury bonds by Rs. 903.7 billion and decreased investments in Treasury bills and Sri Lanka Development Bonds (SLDBs) by Rs. 99.8 billion and Rs. 55 billion, respectively. 

The trading portfolio contracted by 21.2 per cent, wit declines in investments in Treasury bills, Treasury bonds and SLDBs by Rs. 50 billion, Rs. 47.6 billion and Rs. 63.8 billion, respectively, in nominal terms

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