October 12, Colombo (LNW): The Central Bank of Sri Lanka (CBSL) has announced that the country’s financial system has stabilized in the first quarter of 2024, despite challenges from various factors. Key contributors to this stabilization include efforts to reduce high loan interest rates, expand credit facilities for the private sector, and reduce public sector borrowing.
The CBSL, in accordance with the new Central Bank Act No.16 of 2023, issued its first annual financial system stability report, covering data up to June 2024. The report highlights the risks and vulnerabilities in Sri Lanka’s financial system while showcasing the positive outcomes of policy measures implemented by both the Central Bank and other regulatory bodies.
A notable development is the reduction in loan interest rates, which has led to increased borrowing by the private sector and a reduction in non-performing loan (NPL) ratios. Additionally, deposit interest rates have risen, contributing to a more favorable financial environment.
The report also indicates that the Sri Lankan Rupee appreciated against the US Dollar during the first eight months of 2024, buoyed by an increase in foreign remittances, tourism revenue, and export earnings. The CBSL expects this trend to persist.
Furthermore, the government’s absorption of credit facilities obtained by public enterprises has eased pressure on market interest rates and NPL ratios. The domestic debt restructuring process and enhanced risk management in the banking sector have further strengthened the resilience of the financial system.
While the CBSL remains optimistic about continued economic growth and improvements in asset quality and risk management, the report stresses that the success of these outcomes depends on the consistent and effective implementation of policy measures and reforms across all institutions.
