ECONOMYNEXT – Sri Lanka’s loan demand and willingness to lend by bank has continued to be strong in the first quarter of 2025 and expected to continue, according to a survey by the central bank.
The demand for loans by the Small and Medium Businesses grew to an index value of 82.2 in the first quarter from 65.0 in the fourth quarter of 2024.
The demand Index for corporates which was at 57.9 in the fourth quarter of 2025 is expected to rise to 81.2 in the second quarter.
“The recorded increase may have led by Improvements in general economic activities, reduced interest rates, political stability, low and stable inflation and improved business confidence of the country,” the central bank said.
Demand for loans is expected to further increase during 2025 Q2, due to expected economic growth, relaxation of vehicle import restrictions and political stability.”
Sri Lanka central bank has broadly operated deflationary policy in the style of most successful East Asian nations from the last quarter of 2022 to the third quarter of 2024.
After a bout of money printing in the fourth quarter of 2024 to narrowly mis-target has credit picked up in the fourth quarter led to reserve losses and a return to current account deficit.
Sri Lanka has in the past cut rate with inflationary open market operations, under flexible inflation targeting, triggering back-to-back currency crises which required high rates and a credit contraction to restore the lost confidence of the rupee.
In the first quarter, the single policy rate has been slightly above market, amid dollar purchases, but analysts have warned that rising unsterilized excess liquidity – even from dollar purchases – can pressure the rupee as the new money is turned back into cascading credit.
Meanwhile bad loans have also trended down.
NPLs in all sectors except retails was down, the survey found.
“Enhanced cash flows, improved business conditions, strengthened recovery actions, continuation of flexible payment options, reduction of interest rates and improved macroeconomic conditions may have led to observed decline in NPLs,” the report said.
“Observed increase of NPLs in Retail sector may be due to high cost of living.”
