By: Staff Writer
January 04, Colombo (LNW): Sri Lanka’s banking and finance company sectors entered the final quarter of 2025 in their strongest financial position in years. Balance sheets expanded, profitability surged, and asset quality improved across both licensed commercial banks and non-bank finance companies. Yet this resurgence has coincided with one of the country’s worst climate-related disasters in recent years, raising difficult questions about responsibility, urgency, and fairness in post-disaster recovery.
According to Central Bank data, the banking sector’s total assets reached Rs. 24.5 trillion by end-September 2025, while profit after tax rose sharply to Rs. 279 billion. Credit growth accelerated, deposits expanded, and capital buffers remained well above regulatory minimums. The finance company sector recorded similarly strong momentum, with assets growing over 35 percent year-on-year and profits rising nearly 60 percent in the first half of the financial year.
Against this backdrop, the government has formally directed banks and finance companies to provide large-scale financial relief to households and businesses affected by the cyclone and widespread floods. These directives include loan moratoriums, restructuring facilities, and concessional credit for rebuilding damaged homes, vehicles, machinery, and livelihoods. On paper, the sector appears well-equipped to shoulder this burden.
However, affected communities report a stark gap between policy announcements and on-the-ground relief. While banks continue to report rising net interest income and declining impairment charges, disaster victims describe slow processing of relief applications, rigid eligibility criteria, and limited outreach in rural flood-hit areas. Finance companies, despite improved asset quality and declining non-performing loans, remain cautious in extending fresh credit to borrowers whose assets have been destroyed.
Meanwhile, government-led public relief and reconstruction spending has progressed at a noticeably slower pace. Budgetary allocations have been announced, but disbursement remains delayed, forcing banks and finance companies into the role of de facto first responders. At the same time, the state has intensified revenue collection efforts, tightening tax enforcement and fee recovery even as disaster-hit households struggle to rebuild.
This imbalance has created a perception that private financial institutions are being asked to move quickly, while public-sector relief mechanisms advance at a crawl. Industry insiders warn that without clear risk-sharing frameworks or partial government guarantees, forced relief lending could eventually strain balance sheets particularly among smaller finance companies with higher credit-to-deposit ratios.
As of late 2025, Sri Lanka’s financial system is stable, liquid, and profitable. The real test now lies beyond ratios and returns. Whether banks and finance companies can translate financial strength into timely, humane disaster relief while the state accelerates its own rebuilding commitments will define the sector’s credibility in a climate-vulnerable economy.
