Sri Lanka private sector credit growth slowed in December as economic activity weakened following the Cyclone Ditwah disaster, according to Central Bank officials. Provisional data shows lending momentum easing after several months of strong expansion driven by improving demand and higher imports.
Central Bank notes Sri Lanka private sector credit eases after disaster
Sri Lanka private sector credit recorded a notable slowdown in December, marking a pause after several months of robust lending growth, a senior Central Bank official said. The moderation comes amid softer economic activity following the Cyclone Ditwah disaster, which disrupted business operations and consumer demand toward the end of November.
According to provisional Central Bank data, credit extended by commercial banks to the private sector slowed to 183 billion rupees in December 2025. This represents a decline from the previous month’s figure of 262 billion rupees, which had marked a new high in monthly lending volumes.
Officials noted that private sector credit had remained broadly steady at around 200 billion rupees per month for much of the second half of the year. From June onward, lending expanded strongly as economic conditions improved and confidence returned across several sectors of the economy.
S. Jegajeevan, Director of the Central Bank’s Economic Research Department, told reporters that data showed a clear moderation toward the end of the year. She said that while monthly credit growth exceeded 200 billion rupees for several consecutive months, provisional figures indicated a slowdown in December to 183 billion rupees.
Annual growth figures also reflected the easing trend. The 12-month growth rate of Sri Lanka private sector credit fell to 25.2 percent in December, compared with 26 percent recorded in November 2025. Although the decline was marginal, it signalled a potential turning point after a period of sustained acceleration.
While Central Bank officials did not provide a specific explanation for the slowdown, market analysts attribute the deceleration largely to reduced economic activity following the cyclone-related disruptions. The natural disaster affected logistics, trade, and consumer spending in several regions, dampening credit demand during what is typically a busy period for businesses.
Despite the December moderation, officials emphasised that underlying credit conditions remained supportive. Improved demand conditions throughout most of 2025 had encouraged borrowing by businesses and households alike, particularly in sectors linked to trade, transportation, and consumption.
One of the key drivers of strong credit expansion in the latter half of the year was a significant increase in vehicle imports. As import restrictions were eased and consumer confidence improved, lending for vehicle purchases rose sharply, contributing to higher overall private credit volumes.
Economists say the December slowdown should be viewed in context rather than as a reversal of trend. After months of rapid growth, some moderation was expected as base effects, seasonal factors, and temporary disruptions came into play. Lending growth remains elevated by historical standards, reflecting broader economic stabilisation.
Sri Lanka private sector credit is closely watched as an indicator of economic momentum and financial conditions. Strong credit growth typically signals rising investment and consumption, while sharp slowdowns may indicate weakening demand or tightening financial conditions.
In recent months, monetary policy settings have remained relatively supportive, helping sustain borrowing activity. However, analysts note that external shocks, weather-related disruptions, and global uncertainties can still influence short-term credit trends, particularly in a recovering economy.
Looking ahead, the pace of private credit growth will depend on how quickly economic activity normalises following the cyclone and whether demand remains resilient in early 2026. Continued stability in inflation, interest rates, and import policies is expected to play a critical role in shaping borrowing behaviour.
Central Bank officials have indicated that they will continue to monitor credit developments closely, especially given the importance of private sector lending in sustaining economic recovery. Any prolonged slowdown could prompt closer assessment of underlying demand conditions and sector-specific risks.
For now, the December figures suggest a temporary easing rather than a structural shift. Sri Lanka private sector credit remains on a relatively strong footing, supported by improved demand, easing supply constraints, and gradual recovery across key economic sectors.