CBSL Accelerates Financial Sector Consolidation Amid Rapid Credit Growth 📈

The Central Bank of Sri Lanka (CBSL) is intensifying its consolidation drive, identifying three finance companies for mergers and warning that smaller commercial banks face severe sustainability pressures. • Overall Credit Expansion: Private sector credit from licensed commercial banks grew by Rs. 2.1 trillion in 2025 (+25.2% YoY), while finance company lending surged by nearly 49%, raising stability concerns at a recent CoPF meeting. • Non-Bank Sector Reforms: Under the CBSL Master Plan, finance companies must score at least 60/100 on a supervisory scorecard. Only three companies currently fall short and must find merger partners by March 31, 2028. Total finance companies have already been reduced from over 55 to under 30. • Banking Sector Pressures: Smaller commercial banks with assets under Rs. 400 billion are under enhanced half-yearly supervision. CBSL Governor Dr. Nandalal Weerasinghe noted that high technology costs and lack of scale make it difficult for small banks to survive independently. • Exemptions for MSME Lenders: Specialized MSME and microfinance-focused institutions will be exempt from forced mergers, provided they maintain adequate capital and regulatory compliance. • Systemic Relief Measures: The CBSL is encouraging market-driven mergers over taxpayer-funded bailouts. Additionally, the Governor highlighted the newly enacted insolvency framework to protect SMEs, while proposals for a government-led "bad bank" to absorb distressed state assets remain under discussion.