📈 Sri Lankan Banks Signal Stronger Credit Appetite Ahead of Key CBSL Policy Decision

Sri Lankan banks expanded their lending appetite and observed rising loan demand across most sectors in 1Q 2026, driven by stable interest rates and a positive economic outlook, according to the latest CBSL Credit Supply Survey. • Overall Trends: Credit supply willingness and loan demand grew across the Retail, Corporate, and SME sectors compared to 4Q 2025. Asset quality also improved, with non-performing loans (NPLs) declining across all sectors due to broader macroeconomic stability. • Sector Breakdown: Retail: Significant demand increases were seen in housing loans, pawning facilities, and vehicle leases. Corporate & SMEs: Higher credit demand was driven by sector-specific credit schemes, expansion projects, and new ventures. SOEs: Demand turned positive, driven by development projects and higher fuel financing needs linked to the Middle East conflict, though banks' overall willingness to lend to SOEs declined. • Rejection Rates: Loan application rejections declined for the Corporate and SOE sectors but increased slightly in the Retail and SME sectors due to repayment capacity and natural disaster concerns. • 2Q 2026 Outlook: Banks expect credit willingness and demand to increase further, supported by growing working capital financing requirements. However, lenders maintain a cautious approach as prolonged geopolitical tensions and supply-side disruptions from the Middle East conflict continue to weigh on risk assessments.