The Central Bank of Sri Lanka (CBSL) has reported a notable decline in non-performing loans (NPLs) during the third quarter of 2024 (Q3), reflecting the country’s gradual economic recovery. According to the Credit Supply Survey, NPLs across the retail, corporate, state-owned enterprises (SOEs), and SME sectors reduced significantly compared to the previous quarter.
The NPL index value dropped sharply to negative 44.5 in Q3 from positive 7.2 in Q2. CBSL projects the index value to rise slightly to negative 33.8 in Q4, maintaining the downward trend.
The decline in NPLs has been attributed to factors such as continued flexible payment options, reduced interest rates, and improved economic conditions. CBSL anticipates further declines in Q4 as these favorable trends persist, supported by a more optimistic business outlook.
Meanwhile, the value of overall loan rejections recorded a marginal increase in Q3, moving to 0.9 in the index from negative 6.2 in Q2. This uptick was driven mainly by rejections in the SME sector, attributed to repayment capacity issues and insufficient collateral.
In contrast, loan rejections in the retail and corporate sectors declined, aided by lower interest rates, positive cash flows, and better-quality proposals amid favorable business conditions.
Looking ahead to Q4, CBSL expects loan application rejections to decrease significantly to negative 13.6 in the index, bolstered by expectations of continued economic improvement, political stability, positive cash flows, and further interest rate reductions.
This report underscores the positive trajectory of Sri Lanka’s financial and economic landscape, indicating a steady recovery across key sectors.