The Central Bank of Sri Lanka (CBSL) has announced that the country’s financial system has stabilized in the first quarter of this year, thanks to strategic policy measures aimed at lowering loan interest rates, increasing private sector credit, and reducing public sector borrowing. The CBSL’s first Financial System Stability Report under the New Central Bank Act No.16 of 2023 was presented on October 11, shedding light on the current state of Sri Lanka’s financial sector.
Key Highlights:
- Financial Stability Achieved:
Despite various challenges, Sri Lanka has successfully stabilized its financial system during the first quarter of 2024. Key contributors include the lowering of high loan interest rates and an increase in private sector credit. - New Central Bank Act & First Stability Report:
In accordance with the New Central Bank Act No.16 of 2023, CBSL presented its first Financial System Stability Report, which details the risks, policy measures, and reforms affecting the financial system’s stability up to June 2024. - Reduction in Loan Interest Rates:
Market loan interest rates have decreased due to CBSL’s interventions, leading to an increase in private sector borrowing. Non-performing loan ratios have also improved, signaling a healthier banking environment. - Sri Lankan Rupee Strengthens:
The Sri Lankan Rupee appreciated against the US Dollar in the first eight months of the year, driven by higher foreign remittances, tourism income, and export earnings. CBSL anticipates this trend may continue. - Impact of Public Sector Reforms:
The central government’s absorption of credit facilities from public enterprises has relieved pressure on market interest rates and non-performing loans, further enhancing financial stability. - Improved Financial Sector Resilience:
The domestic debt restructuring process, along with risk reduction measures in the banking system, has increased the resilience of the financial sector, allowing for better risk management and higher-quality assets.
The CBSL report highlights the positive developments in Sri Lanka’s financial system, indicating that continued commitment to policy reforms and financial stability measures will be crucial in maintaining and strengthening these gains. The outlook for sustained economic growth remains optimistic as the country navigates the challenges ahead.
Central Bank of Sri Lanka (CBSL)
Last modified: October 13, 2024
