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Sri Lanka’s Banking Sector Faces Pressure as Foreign Assets Decline

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    The article on the Sri Lanka bank foreign assets in reverse gear (EconomyNext, September 16, 2025) was one of the recent articles to raise concerns about the foreign exchange (FX) position of Sri Lanka. The working report reveals that the net foreign assets (NFA) of the banking system which had reached its highest point of USD 3.3 billion in April 2025 have begun to decrease steadily. By July NFAs had declined to USD 2.90 billion. This fall has cast doubt on the prognosis of the banking system and the capacity of the Central Bank of Sri Lanka (CBSL) to restore sufficient reserves. The article continues on to state that the CBSL and the commercial banks are both strained because of repayments, swaps and policy dilemmas.   What Do Net Foreign Assets (NFA) Mean?   The difference between the foreign assets and the foreign liabilities of the banking system in a particular country is the Net Foreign Assets. When NFA is positive, it means that the banks ...
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Credit Boom in Sri Lanka: Growth Signal or Brewing Trouble?

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Article Reference Source: EconomyNext – “Sri Lanka private credit continues blistering expansion in July with Rs201bn” Date Accessed: 12th September 2025 Summary of the News Private credit in Sri Lanka increased to levels not seen in recent times. Credit to households and enterprises grew by LKR 1,485 billion in the 12 months period, from just LKR 493 billion in the prior year. This is an annual growth rate of 19.6% . The rate this year is even more startling: lenders and banks dispensed loans of LKR 901.6 billion in the first seven months alone, nearly doubling the LKR 341 billion for the same time frame in 2024. Others caution that the resulting rapid boom can put a strain on inflation, foreign reserves, and financial stability, but others greet the boom as proof of recovery. Reading the Situation Strong lending expansion appears to be a positive sign at first sight. While borrowing on the part of consumers might drive consumptio...
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Sri Lanka’s Debt Restructuring

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  When tax revenues are lacking, government debt serves as one of the ways to meet the financing requirements of specific public expenditures. However, too much debt can lead to extreme fiscal strain which makes fulfilling basic obligations and settling debts, near to impossible. Sri Lanka, by 2022, reached a point where they were unable to recover from the extreme fiscal strain and went on to default on their obligations.   Debt restructuring refers to a formal process which entails the renegotiation of a country’s debt obligations with the lenders. These can include reprofiling to much lower interest debts for a longer period, or making period payments contingent on the borrowers performance. Sri Lanka, 2025, was the center of concern regarding the innovative approaches to restructuring debt under fiscal prudence, while maintaining stability and confidence from investors. As self described ‘model Belize’, shadowing a fiscal critic, IMF Deputy Managing Director Gita Gopin...
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Understanding Basel III: The Global Rulebook for Banks

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  Figure 1 : People’s Bank Logo As we all know People’s Bank is one of the top five commercial banks in Sri Lanka. It is the second largest state-owned commercial bank right after Bank of Ceylon (BOC). Recently, People’s Bank reported an astonishing mid-year Profit Before Tax (PBT) of LKR 28 Bn, recording it as the all-time high of the bank’s history. According to the mid-year financial statement, the bank has made a significant improvement in their financial performance. Following are some Key Performance Indicators (KPI) of People’s Bank as of 30th June 2025. Indicator 30th June 2025 31st December 2024 Change (%) Profit Before Tax (PBT) LKR 27.98 Bn LKR 2.61 Bn 970.2 Profit After Tax (PAT) LKR 18.21 Bn LKR 1.53 Bn 1088.5 Total Deposits LKR 3.12 Tn LKR 2.85 Tn 9.48 Basel III Leverage Ratio (Min. requirement - 3%) ...
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