By: Staff Writer
January 13, Colombo (LNW): Sri Lanka’s private sector credit growth in 2025 has emerged as one of the strongest indicators of post-crisis economic revival, but beneath the headline numbers lies a complex mix of opportunity and risk. With monthly private credit peaking at a record Rs. 262.6 billion in November 2025, the surge reflects renewed business confidence, easing monetary conditions, and shifting currency dynamics while simultaneously raising questions about sustainability and financial resilience.
According to Central Bank of Sri Lanka (CBSL) data, outstanding private sector credit climbed to Rs. 10 trillion, marking a 26% year-on-year increase. Domestic banks accounted for the bulk of this expansion, with credit rising nearly 28% YoY to Rs. 9.43 trillion, while overseas banking units also posted modest gains. This growth significantly outpaced lending to the government, which rose only 0.1% YoY, signaling a structural shift in credit allocation toward private enterprise.
Sectorally, industry emerged as the largest beneficiary, followed by services and personal lending. This pattern points to an acceleration in manufacturing, construction, trade, and consumption-driven activity. Analysts note that lower interest rates held steady at 7.75% in CBSL’s final monetary policy review of 2025 played a critical role in reviving demand for working capital and investment credit.
Currency movements further amplified borrowing. Rupee depreciation encouraged importers to finance early payments through bank credit, while exporters delayed foreign exchange conversions, inflating credit balances. This dynamic, while boosting short-term liquidity demand, also increased exposure to foreign currency risks within the banking system.
However, the credit boom has not come without warning signs. As lending expands rapidly, collateral concentration risk has increased, particularly in gold-backed and vehicle-backed loans. While banks have strengthened capital buffer as noted in the CBSL’s Financial Stability Review the rapid growth of loan books tests underwriting discipline and asset quality.
The picture became more complicated following Cyclone Ditwah, which struck in late November 2025. Although CBSL expects only a temporary inflation spike to around 3%, IMF staff assessments warn inflation could breach the 5% target ceiling. In response, regulators introduced debt moratoriums, concessional lending, and repayment relief for affected borrowers measures necessary for recovery but potentially distorting credit risk assessments.
Government-backed concessionary loans at 3% interest, alongside relaxed CRIB requirements, aim to support SMEs and integrate informal enterprises into the formal system. While supportive in the short term, such interventions require careful calibration to avoid mispricing risk.
Ultimately, Sri Lanka’s private credit surge reflects genuine economic momentum. Yet maintaining stability will depend on whether growth is anchored in productivity and exports or inflated by short-term liquidity, asset-backed lending, and post-disaster accommodation. The coming year will test whether this credit-fueled recovery can endure without undermining hard-won macroeconomic stability.
