The Central Bank of Sri Lanka (CBSL) has released its Financial Stability Review (FSR) 2025, providing a comprehensive assessment of the country’s financial system, identifying potential risks and vulnerabilities, and outlining the policy measures taken by the Central Bank and other regulatory authorities to safeguard stability.
This statutory report has been published in accordance with Section 70(1) of the Central Bank of Sri Lanka Act, No. 16 of 2023.
Key highlights of the FSR 2025 and the financial stability outlook:
- Improved sector resilience: The overall resilience of the financial sector strengthened during the first half (H1) of 2025 compared to H1 of 2024, supported by favorable domestic macroeconomic conditions despite global uncertainties and the lingering effects of the past economic crisis.
- Subdued market stress: The Financial Stress Index (FSI) remained low during the eight months ending August 2025, indicating improved market conditions relative to the previous year.
- Banking sector recovery: The banking sector showed enhanced strength across key indicators, including profitability, capital adequacy, efficiency, and asset quality. This progress was reflected in the improved Banking Soundness Index.
- Expansion in finance companies (FCs) sector: The FCs sector experienced robust credit growth in H1 2025, driven by higher demand for vehicle and gold-backed loans following the lifting of vehicle import restrictions, rising gold prices, and declining market interest rates.
- Growth in household and institutional credit: Credit to both households and institutions expanded during H1 2025, supported by lower interest rates and improved macroeconomic stability.
- Policy measures for stability: The Central Bank implemented several policy actions aimed at bolstering financial system stability, while continued fiscal consolidation and economic recovery are expected to reinforce these gains.
- Outlook and monitoring: The performance of banks and FCs is projected to improve further with increased lending to productive sectors. However, the Central Bank cautioned that credit quality and impairment coverage for Stage 3 loans will require close monitoring to ensure continued resilience.
The CBSL noted that, going forward, financial system stability is expected to be maintained alongside further improvements in macroeconomic conditions.
The full publication is available on the Central Bank’s official website:
🔗 Financial Stability Review 2025 – Central Bank of Sri Lanka
