Banking sector profits up 19.3% to Rs. 369 b in 2025 amid conservative lending: CBSL

Sri Lanka’s cumulative banking sector reported stronger profitability in 2025, with profits after tax rising 19.3% year-on-year (YoY) to Rs. 369 billion by end-December, according to latest data released by the Central Bank of Sri Lanka (CBSL).

The increase was supported by higher interest income and a sharp rise in non-interest income, even as operating expenses continued to increase.

Profits before tax rose 3.7% YoY to Rs. 583.7 billion, with net interest income growing 11.7% to Rs. 1.02 trillion. Non-interest income increased 49.8% to Rs. 275 billion during the year.

Sector-wide cumulative operating expenses rose 10.3% to Rs. 493.4 billion, while impairment for loans and other losses declined significantly to Rs. 59.4 billion.

Total assets of the banking sector expanded 12.4% YoY to Rs. 24.9 trillion as at end-December 2025. Net loans and receivables increased 23% to Rs. 12.9 trillion, while investments rose 3.1% to Rs. 9.4 trillion.

The sector’s deposit base also strengthened, growing 11% to nearly Rs. 20 trillion during the year.

Profitability indicators remained broadly stable. The industry average return on equity increased marginally to 16.7% from 16.6% a year earlier, while return on assets declined slightly to 2.5% from 2.6%. Total impairment coverage fell to 7.3% from 8.5% a year earlier.

CBSL data show the banking sector reporting a credit-to-deposits ratio of 69.9%, indicating that banks continue to maintain a relatively conservative lending stance. This ratio was 66.3% as at end-December 2023 and 63.9% a year later.

In effect, banks have lent about Rs. 70 for every Rs. 100 of deposits, leaving a substantial share of funds invested in liquid assets and investments rather than fully deployed as loans. 

This suggests that despite the recovery in private sector credit, banks continue to operate with comfortable liquidity buffers and retain capacity to expand lending if economic conditions strengthen.

The sector’s net credit-to-funding ratio stood at 154.1%, reflecting the broader funding structure of banks which includes deposits, capital. and other liabilities. Taken together with the loan-to-deposit ratio, the indicators point to a banking system that remains liquid and cautious even as credit conditions gradually improve.

source: FT