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Sheron
Sheron
Mar 09 2026
58Credit to the private sector by licensed commercial banks continued unabated through January 2026 at a faster pace from a year earlier, although the amount of loans granted fell sharply from the levels seen in December 2025 due to seasonal effects.
According to the latest data, licensed commercial banks have expanded their total outstanding loans to the private sector by Rs.82.6 billion in nominal terms, representing a 26.3 percent increase from a year ago. In December 2025, Sri Lanka’s commercial banks expanded their loans to the private sector by Rs.183.0 billion, bringing the total for the full year to an unprecedented Rs.2,056.1 billion, reflecting a 25.2 percent growth.
Typically, January credit growth either slows or registers a contraction, as importers who borrowed heavily leading up to the year-end festive season usually settle their facilities in January after collecting revenue from sold stock.
In January 2025, private sector credit fell by Rs.4.6 billion, while a year earlier in January 2024, such credit declined by Rs.52.2 billion.
While these are temporary aberrations that are unlikely to impact the broader trend in private sector credit growth, the potential rise in inflation due to supply shocks from a protracted conflict in the Middle East, or excessive credit squeezing liquidity on the home front, could prompt the Central Bank to apply the brakes to slow the pace of credit.
With the second monetary policy announcement due later this month, the Central Bank could strike a more hawkish tone if current tensions persist.
Banks, however, remain bullish on the overall credit outlook for 2026. For instance, some banks expect credit to grow by around 20 percent in 2026, as senior officials at a leading commercial bank recently disclosed at an investor forum presenting their 2025 financial performance.
Almost every commercial bank reported well over 20 percent growth in their loan books in 2025. A substantial amount of their loans and leases have gone toward vehicles after vehicle imports resumed in February of last year.
While this is unlikely to be sustainable from the standpoint of credit concentration and the Balance of Payments, it could also lead to other issues such as the need for increased fuel imports, alongside the social and economic costs of congestion and deteriorating air quality, as reported last week.
Buoyed by the growth seen in 2025, some banks are also announcing fresh capital calls by way of debenture and bond issues.
source: Daily Mirror
