Bank profits rise 13% as assets top Rs. 26 t

The banking industry lifted cumulative after-tax profit by 12.9% to Rs. 209 billion in the first half of 2026 from a year earlier, as total assets grew 9.3% to Rs. 26 trillion on the back of a 25% surge in lending, latest Central Bank of Sri Lanka (CBSL) data showed.

The figures point to a sector shifting its balance sheet from investments to loans. Net loans rose by Rs. 2.8 trillion in the year to June, more than the Rs. 2.2 trillion growth in total assets, while investments fell by Rs. 979 billion. Profits grew, but impairment charges doubled, returns on equity and assets edged lower, and liquidity and capital buffers thinned.

Net interest income increased 11.3% to Rs. 555 billion and non-interest income jumped 31.9% to Rs. 178 billion.

Operating expenses climbed 15.3% to Rs. 268 billion. Impairment charges for loans and other losses rose 104.7% to Rs. 69 billion from Rs. 34 billion. Profit Before Tax (PBT) grew 8.2% to Rs. 312 billion.

Return on equity after tax slipped to 17.5% from 18.2%, and return on assets before tax to 2.5% from 2.6%. The net interest margin, the gap between what banks earn on assets and pay on funding, narrowed to 4.4% from 4.5%. The efficiency ratio, operating costs as a share of income, was broadly unchanged at 36.6%.

On the balance sheet, net loans and receivables rose 25% year-on-year (YoY) to Rs. 14.2 trillion at end-June. Investments fell 9.9% to Rs. 8.9 trillion. Cash and dues from banks increased 17.2% to Rs. 2 trillion.

Deposits grew 7.3% to Rs. 20.6 trillion, lifting the credit-to-deposit ratio to 74% from 64.2% a year earlier. Borrowings rose 26.9% to Rs. 1.9 trillion.

Asset quality improved. The ratio of Stage 3 loans, those classified as credit-impaired, to total loans fell to 9.1% from 11.9%. Stage 3 impairment coverage, the share of such loans covered by provisions, rose to 61.3% from 54.8%. Total impairment coverage declined to 7.1% from 8.2%.

Liquidity indicators weakened across the board, though coverage and funding ratios remained well above 100%. High-quality liquid assets, which are cash and securities that can be readily sold without significant loss, fell to 29.5% of total assets from 38%. The Rupee Liquidity Coverage Ratio, which measures such assets against expected cash outflows over a 30-day stress period, dropped to 272.5% from 328.5%. The All-Currency Ratio declined to 229.7% from 283.7%. The Net Stable Funding Ratio, which gauges how far long-term assets are backed by stable funding, eased to 148.1% from 162.7%.

Capital buffers thinned even as equity capital and reserves grew 15.7% to Rs. 2.5 trillion. The Capital Adequacy Ratio fell to 18.2% from 19.4%, the Tier 1 capital ratio to 14.8% from 16%, and the Common Equity Tier 1 ratio to 14.6% from 15.7%.

The non-bank finance company (NBFI) sector expanded sharply in the year to June, with total assets rising 41% YoY to Rs. 3.2 trillion, driven by a 47.8% expansion in lending. The sector’s loan book reached Rs. 2.6 trillion by end-June, while other investments rose 19.7% YoY to Rs. 434 billion and other assets increased 25.9% to Rs. 148.6 billion. Total assets stood at Rs. 2.8 trillion a year earlier.

Funding growth was also strong, with total deposits rising 22.9% YoY to Rs. 1.43 trillion. Borrowings for on-lending more than doubled, increasing 124% to Rs. 1.05 trillion, indicating that the rapid expansion of the sector’s balance sheet was increasingly supported by borrowed funds alongside deposits (see: https://www.ft.lk/front-page/Finance-companies-assets-surge-41-YoY-to-Rs-3-2-t-by-June/44-795855).