Central Bank’s Single Rate Policy Squeezes SMEs & Recovery 📈

• Overall Figures & Banking Metrics: - Sri Lankan local banks maintain Net Interest Margins (NIMs) of 4% to 6%, significantly higher than regional peers like Bangladesh (~2.9%). - Fee and commission income accounted for ~29% of total banking income in 2025. - Household gold-pawning portfolios have surged beyond Rs. 1.3 Tn amid working capital rationing. • Impact on Key Sectors: - Vulnerable segments including agriculture, SMEs, and apparel & textiles absorb elevated interest shocks and non-performing loans, further compounded by disruptions like Cyclone Ditwah. - A blunt single policy rate treats export-earning industries generating employment the same as speculative property development and luxury vehicle imports. • Regional & Global Benchmarks: - Sri Lanka: Relies primarily on a single headline policy rate, leaving Section 76 powers under the Monetary Law Act (to direct credit by sector) largely unutilized. - India & South Korea: Utilize Priority Sector Lending and targeted emergency lending facilities (~3%) for currency-exposed SMEs and exporters. - Bangladesh & Malaysia: Implement lending rate caps and mandatory sector credit disclosures to hold commercial banks accountable. - Spain, Greece, & Brazil: Deployed targeted liquidity, tax breaks, and counter-cyclical development bank financing (BNDES) to protect national employment and foreign exchange drivers. • Path Forward: - Expert opinion calls on CBSL to enforce targeted credit allocations, active oversight on Parate execution assets, and consumer protection measures to support SMEs critical to national economic recovery.