Sri Lanka’s private credit from commercial banks declined by 4.6 billion rupees in January 2025, following a significant surge of 193.2 billion rupees in December, according to official data. Meanwhile, credit to the government continued to expand.
The total private credit outstanding fell to 8,151.4 billion rupees in January, down from 8,156.0 billion rupees in December. The banking system had high excess liquidity in December, causing the rupee to weaken and imports to rise to 1.9 billion dollars.
Economic recovery was progressing under low inflation until late 2024, when the injection of 100 billion rupees in excess liquidity triggered currency fluctuations and import credit surges. Unlike investment credit, credit used for imports can reverse as goods are sold.
Meanwhile, credit to the government increased by 83.2 billion rupees, while credit to state enterprises (SOEs) dropped by 8.7 billion rupees to 648 billion rupees in January, after a 48.7 billion rupee rise in December. The Ceylon Electricity Board’s regulator-mandated 20% tariff cut in January may further impact credit flows.
With domestic asset-driven liquidity largely withdrawn in January, concerns remain over monetary policy impacts, exchange rate stability, and credit swings in Sri Lanka’s financial system.