Sri Lankan finance companies have substantially increased investments in government securities, repurchase agreements (repos), and unit trusts in the first half of 2024, as reported by the Central Bank. This shift comes as vehicle imports remain banned following the foreign exchange shortage that stemmed from inflationary rate cuts in 2020.
The Central Bank’s report notes that, despite challenges in key areas like vehicle leasing and hire purchase, a recovery in business activity and reduced interest rates contributed to rising demand for credit. In 2024, loans and advances by finance companies began expanding again, showing an 11.4% increase and reaching 1,359 billion rupees by the end of Q2.
Investment in government securities accounted for 39.8% of the total finance company holdings. Meanwhile, investments in unit trusts and the repo market surged, with unit trust holdings growing from 1.6% to 5.9% of the total, and repo investments rising from 9.3% to 15%.
The government is expected to reopen car imports by 2025, having initially banned over 3,000 items, including vehicles, during prior attempts to control forex outflows and lower interest rates through monetary injections.