📈 HNB CEO Warns of Liquidity Pressures Amid Credit Surge

Hatton National Bank (HNB) CEO Damith Pallewatte highlights that while the banking sector saw phenomenal loan growth in 2025 (2x-3x higher than average), this expansion is now straining margins and market liquidity. • Market Dynamics & Liquidity Significant shift from low-yield Government securities to private sector loans and advances. Rising deposit rates are increasing funding costs, leading to an upward trend in lending rates. Reopening of vehicle imports has diverted credit toward consumption, further tightening liquidity. • Regulatory & Capital Markets Lower single borrower limits are forcing large conglomerates to shift away from traditional banking and toward capital markets for funding. 2026 is expected to be the transition year where investment banks play a larger role in corporate fundraising. • Economic Outlook & Risks Current 5% growth targets may be insufficient to avoid a potential second debt restructuring post-2028. A critical need for higher Foreign Direct Investment (FDI) persists as current frameworks underperform expectations. Impact of Cyclone Ditwah remains limited; the "business engine" continues to run despite infrastructure costs. • Sector Impact Macro adjustments likely to favor exporters over importers as exchange rates and interest rates firm up. Improvement in asset quality is helping banks attract better funding despite balance sheet pressures.