Sri Lanka banking sector EPS is on track to increase more than 5 percent in 2026 as financial services are exempted from the Social Security Contribution Levy. The move is expected to significantly elevate profitability across banks and finance companies.
Sri Lanka banking sector EPS forecast to rise over 5% in 2026 with key tax relief
Sri Lanka’s financial industry is gearing up for a stronger earnings outlook, with analysts expecting a solid rise in profitability once a key tax burden is lifted next year. According to Asia Securities, Sri Lanka banking sector EPS will grow by an estimated 5.1 percent in 2026 following the exemption of financial services from the Social Security Contribution Levy (SSCL). The policy change is scheduled to take effect on 1 January 2026, delivering immediate tax relief to the industry.
The SSCL, a 2.5 percent charge applied to taxable income, was introduced as part of government efforts to rebuild revenue during the height of the economic crisis. Banks and non-bank financial institutions (NBFIs) were significantly impacted due to their large taxable bases. With the removal of the levy, analysts believe banks will see a meaningful boost in post-tax earnings at a time when the sector is navigating economic recovery and restructuring pressures.
Asia Securities estimates that banks could experience a rise of between 4.7 and 5.2 percent in EPS during 2026. The improved profitability will also enhance return on equity metrics, with projected gains of roughly 78 basis points. These increases represent a notable shift for an industry that has spent the past several years managing high impairments, tighter margins, and elevated regulatory oversight.
The research further projects that NBFIs will also benefit, though to a slightly lesser extent. Based on their reported earnings for the 2024/25 financial year, the EPS of licensed finance companies is expected to increase by around 4.2 percent, with return on equity improving by approximately 60 basis points. The varied range of benefits reflects differences in taxable income structures and earnings resilience within the non-bank sector.
Despite the significant upward impact on earnings forecasts, analysts caution that lending dynamics will continue to be influenced by the Central Bank. Efforts to balance credit demand while keeping borrowing costs manageable remain a priority. Asia Securities noted that regulators are likely to ensure that the easing of tax burdens does not result in steep increases in lending rates driven by profit motives rather than market performance. Authorities aim to encourage credit expansion to support business growth while protecting individuals from excessive pricing.
The Sri Lanka banking sector EPS improvement aligns closely with the government’s broader fiscal consolidation strategy. Strengthening the financial sector supports overall economic recovery efforts, including capital restructuring, investment flows, and public finance stabilization. The removal of SSCL on financial services signals a shift toward supporting growth-driven policy measures now that fiscal pressures have eased relative to the peak crisis period.
Recent performance figures underscore the resilient trajectory of the banking industry. Central Bank data shows that the sector posted a profit after tax of Rs. 187.5 billion in the first half of this year, representing a 67.8 percent surge compared to the same period in 2024. Analysts attribute this jump to improving payment discipline, recovering asset quality, and the gradual reversal of provisions previously allocated for restructuring and loan losses.
As the economy expands and financial conditions stabilize, earnings improvements could boost investor confidence and enhance sector performance on the Colombo Stock Exchange. Higher profitability also supports capital adequacy and lending capacity, strengthening the financial system’s role as a catalyst for national growth.
Stakeholders are expected to monitor how banks adapt to this transition. The relief from the SSCL provides strategic breathing room for institutions to refine their business models, invest in digital transformation, and enhance risk management frameworks. Greater efficiency and lower tax pressure could encourage more competitive interest rate pricing, opening opportunities for borrowers and stimulating investment-driven demand.
The rise in Sri Lanka banking sector EPS marks a critical development within the country’s evolving economic story. As profitability strengthens, financial institutions are positioned to contribute more effectively to recovery momentum and long-term development. Ensuring that gains are shared through more affordable access to finance will remain an essential focus as policymakers, regulators, and the industry collaborate on shaping a more resilient future.