Over a third of listed firms unable to cover interest costs: CBSL

More than a third of Sri Lanka’s listed non-financial companies failed to earn enough to cover their interest costs in the first half of 2026, as a sharp rise in revenue was eroded by higher costs and borrowing rates, the Central Bank of Sri Lanka (CBSL) said in a new report yesterday.

The share of listed non-financial corporates (NFCs) with an interest coverage ratio (ICR), or earnings before interest and tax (EBIT) relative to interest expense, below one rose to 37.7% from 33.8% a year earlier, the CBSL said in its Financial Stability Review 2026. The share of firms able to fully meet interest costs from earnings fell to 62.3% from 66.2%.

The assessment, based on 204 companies listed on the Colombo Stock Exchange (CSE) as at end-June 2026, uses listed firms as a proxy for the wider corporate sector.

Over a third...

The deterioration came despite a strong rebound in sales. Revenue of listed NFCs grew 22% year-on-year (YoY) in 1H, up from 7.6% a year earlier, with 67.2% of firms reporting higher revenue, compared with 59.8%.

The automobile sector led the growth, with revenue soaring 138.9% following the relaxation of vehicle import restrictions, while the power and energy sector benefitted from higher energy prices amid heightened geopolitical tensions. All sectors except construction and engineering contributed positively to revenue growth.

However, aggregate net profit fell 6.1% to Rs. 137 billion from Rs. 146 billion, reversing growth of 65.2% in 1H 2025. Earnings before interest, tax, depreciation and amortisation (EBITDA), a measure of operating profit, slipped 0.4%, against a growth of 33.4% a year earlier.

Higher costs drove the decline. While revenue growth added Rs. 199 billion to profits, this was largely offset by a Rs. 152 billion rise in cost of sales, while higher distribution, administrative, and other operating costs reduced profit by a further Rs. 52 billion. Finance income and other income were insufficient to offset higher operating expenses, finance costs, and taxes.

Net profit margins and return on equity fell notably, while gross margins and return on assets also moderated. Finance costs as a share of average debt rose slightly amid higher market interest rates.

The pressure was not broad-based, the CBSL said. Median net profit and EBITDA growth remained positive, and 55.9% of firms still increased profits, marginally down from 56.4%, indicating that profit contractions at several large corporates outweighed gains among many smaller ones.

Debt servicing strain was concentrated in a few sectors. Trading and distribution recorded the lowest ICR and was the only sector unable to cover its interest costs from earnings, posting a negative net profit relative to debt. Construction and engineering carried the highest debt-to-equity ratio along with low profits relative to debt, indicating comparatively higher vulnerability. In contrast, food, beverage and tobacco and real estate recorded the strongest interest coverage, highest profits relative to debt, and relatively low leverage.

The CBSL cautioned that the simultaneous weakening of profitability and rise in borrowing costs could further constrain the debt servicing capacity of financially vulnerable firms, and that persistent earnings pressure among such corporates could lead to higher credit risk in the financial sector