Banking & Finance Companies
A visual overview of Sri Lanka’s financial sector covering banking-sector capital strength, asset quality, profitability, liquidity and the balance-sheet expansion of licensed finance companies. The latest available observations are used from the supplied Central Bank datasets.
The banking sector entered 2026 with a substantially stronger capital position than at the beginning of the period. The total capital ratio reached 18.46% in Q1 2026, compared with 15.14% in Q1 2022. The Tier 1 capital ratio stood at 14.93%, while the leverage ratio was approximately 7.11%. The strengthening of regulatory capital provides an important buffer against credit, market and operational risks as banking activity continues to recover.
Banking-sector asset quality has improved considerably from the deterioration recorded during 2022–2023. Stage 3 loans excluding the undrawn portion declined from 8.39% in Q1 2022 to approximately 9.35% in Q1 2026, after peaking above 13% during 2023. At the same time, Stage 3 impairment coverage increased to approximately 59.54%, indicating a stronger provisioning position against impaired exposures.
Banking profitability improved strongly after the crisis period. Annualised ROE increased from 10.18% in Q1 2023 to 18.62% in Q1 2025, before moderating to 14.80% in Q1 2026. ROA followed a similar pattern, reaching 2.64% in Q1 2025 before easing to 2.20%. Despite the moderation, profitability remains substantially stronger than during the weakest phase of the recent economic crisis.
Licensed finance companies expanded their balance sheets significantly during the period. Total assets increased from Rs. 1.63 trillion in March 2023 to Rs. 3.21 trillion by June 2026. Gross loans increased to approximately Rs. 2.66 trillion, while customer deposits reached approximately Rs. 1.43 trillion. Equity also increased to approximately Rs. 578 billion. The expansion indicates a substantial recovery and renewed growth in the non-bank financial sector.
The finance-company sector reported a Tier 1 capital ratio of 17.30% and a total capital ratio of approximately 18.70%. Gross Stage 3 loans represented around 6.12% of total advances, while net Stage 3 loans were approximately 3.21%. The Stage 3 impairment coverage ratio stood at approximately 47.61%, indicating a significantly improved credit-quality position compared with the sector’s earlier stress period.
Customer deposits represented the largest funding source, accounting for approximately 45.6% of total assets. Borrowings represented approximately 30.6%, while equity accounted for approximately 19.1%. On the asset side, loans represented approximately 80.2% of total assets, demonstrating the highly credit-focused nature of the finance-company business model.
Capital Markets, Securities & Financial Flows
A visual overview of Sri Lanka’s financial sector, bringing together Colombo Stock Exchange foreign investor flows, Treasury securities inflows and international sovereign bond issuance from the supplied Central Bank datasets.
Foreign investment flows through the Colombo Stock Exchange remained volatile. The supplied dataset records a US$122.0 million net outflow during 2025. During the first six months of 2026, secondary-market inflows amounted to approximately US$76.8 million, while outflows reached US$180.7 million, resulting in a net outflow of approximately US$101.1 million. The data indicates that foreign participation remained sensitive to market conditions, with selling pressure exceeding purchases during the latest period.
Foreign investor participation has moved through periods of substantial inflows and outflows. The latest annual data available in the supplied series show that the market’s foreign-flow position can change rapidly depending on investor sentiment, domestic economic conditions and global financial-market conditions. The 2025 net outflow of US$122 million contrasts with the much larger swings recorded during earlier periods.
Foreign flows into Treasury bills and bonds have been highly cyclical. The dataset shows particularly large movements during periods of changing global risk appetite and domestic financing conditions. The most recent annual figure in the supplied series is approximately US$21.8 million net outflow for 2026, while 2025 recorded approximately US$247.9 million net inflow. These movements demonstrate the importance of foreign participation in the domestic government securities market.
International sovereign bond issuance has historically been an important source of external market financing for Sri Lanka. The supplied historical series records significant issuance episodes, including substantial transactions during the 2015–2024 period. The issuance pattern also illustrates the changing access of the sovereign to international capital markets. Following the country’s debt distress and subsequent restructuring process, the significance of international market access has shifted from conventional market borrowing toward debt restructuring and sustainable financing.