New private sector borrowing sees sharp Feb. recovery, rising 74.7% month-on-month to Rs. 144.3 billion after a nine-month low in January, according to the latest Central Bank of Sri Lanka (CBSL) data. The rebound highlights renewed credit activity despite ongoing post-Cyclone Ditwah disruptions and regional uncertainties.
New private sector borrowing rises 74.7% in February 2026, signaling credit rebound
Private sector borrowing from domestic commercial banks climbed to Rs. 142.6 billion in February, recovering from the Rs. 108 billion recorded in January, which marked the lowest monthly lending level in 11 months. While the February figure remains the fourth lowest over the past year, the jump signals a return of confidence among borrowers and a stabilization of credit flows in the wake of economic shocks.
Domestic bank lending had peaked at Rs. 263 billion in November 2025 before tapering to Rs. 183 billion in December and Rs. 108 billion in January. Only April 2025 (Rs. 87 billion) and February 2025 (Rs. 105 billion) recorded lower levels of new borrowing during the previous 12 months. The sharp increase in February reflects a combination of pent-up demand from businesses and a broad-based easing in market interest rates.
Despite the fluctuations in monthly borrowing, the overall private sector credit stock continued to expand, rising 26.4% year-on-year (YoY) to Rs. 10.44 trillion by the end of February. Loans from domestic banks accounted for Rs. 9.88 trillion, up 28.9% YoY, while outstanding debt from overseas banking units declined 5.5% to Rs. 557.7 billion. The growth in domestic credit underscores sustained activity in Sri Lanka’s private sector, particularly in key industries and service sectors.
Meanwhile, net credit to the Government fell marginally by 1.5% YoY to Rs. 8.14 trillion. CBSL’s exposure increased 2.1% to Rs. 1.75 trillion, while borrowing from domestic banks declined 2.4% to Rs. 6.3 trillion. Lending to public corporations also gained momentum in February, with new loans amounting to Rs. 14.40 billion, even as total outstanding debt from domestic banks fell 26.6% YoY to Rs. 437.2 billion.
CBSL officials addressed potential concerns regarding the impact of the Middle East war on credit growth and lending rates. Economic Research Director Dr. Lasitha Pathberiya noted that interest rates are expected to ease further, supporting continued expansion in private sector borrowing. He emphasised that despite a short-lived uptick in rates during late 2025, the downward adjustment trend in market interest rates will persist, fostering an environment conducive to business credit growth.
Dr. Pathberiya highlighted the resilience of private sector credit, pointing out that YoY growth stood at 26.3% in January 2026 and that private sector credit expansion reached approximately Rs. 2 trillion in 2025, compared to Rs. 800 million in 2024. This strong growth trajectory signals sustained demand for financing across industries, from manufacturing and trade to services and infrastructure development.
CBSL Governor Dr. Nandalal Weerasinghe indicated that small and medium enterprises (SMEs) do not currently require additional credit relief. He noted that non-performing loans remain under control despite rising costs driven by global fuel supply shocks, which led the Government to introduce quotas and increase prices by over 30% since the onset of the Middle East conflict. The comments suggest that Sri Lanka’s financial system continues to function effectively, even amid external pressures.
The sharp recovery in February new private sector borrowing reflects both market adaptation to previous disruptions and confidence in the Central Bank’s monetary policy stance. Analysts expect that ongoing interest rate adjustments and the strengthening of lending frameworks will further stimulate borrowing activity, supporting private sector investment and contributing to overall economic growth.
As private sector credit continues to expand, it reinforces the role of domestic banks in facilitating economic activity. The February rebound also highlights the resilience of businesses in adapting to external shocks while maintaining investment and operational momentum, providing a positive signal for policymakers and investors alike.
With new private sector borrowing seeing sharp Feb. recovery, Sri Lanka’s banking sector is poised to sustain momentum in credit growth, supporting both economic recovery and private sector investment initiatives in the months ahead.