Sri Lanka’s expanding private sector credit gap “signals potential systemic risks that require close monitoring,” according to the Central Bank’s 2025 Financial Stability Review.
The surge in private sector credit follows a robust economic recovery after the country’s 2022 sovereign debt default and unprecedented financial crisis. Despite this growth, Central Bank Governor Dr. Nandalal Weerasinghe emphasized that there is no cause for concern, attributing the trend to a decline in public sector credit, which has allowed for increased lending to the corporate sector.
“There are some indicators to see whether these credit levels are sustainable or there are any stability concerns. Still, financial intermediation is well below the levels that we had earlier. That’s one indicator,” Weerasinghe said during the release of the Financial Stability Review on Thursday.
He added, “Second one is the private sector credit, as a total share is still below the pre-pandemic levels. That’s partly because the public sector credit share is coming down. As a result, more private credit can be accommodated in the system.”
Weerasinghe noted that comparisons and further analysis are needed to assess whether these trends pose any risks. “I think we don’t see that. That’s where the other indicators say still intermediates to recovering below the levels that we had earlier and also private sector credit is well below compared to the overall economic activity.”
He further explained, “Another factor is the economic recovery means private sector credit also will have to grow in line with the economic recovery. We see that is in line… when you look at overall credit expansion, which is basically more of a shift of public sector credit to the past.”
“These are things that we need to monitor in technical terms. We need to understand what is happening in the economy and credit sector. And that’s why we see credit dispersion among some of the sectors is very broad-based and going through all the sectors in a very diversified way. That’s where we think that’s not a major concern.”
“So it’s not overheating, right? No, it’s not overheating, not at all,” he concluded.
