December private credit surges by Rs.183bn

Sri Lanka’s licensed commercial banks saw their total outstanding private sector credit rising by a robust Rs.183 billion in December 2025, translating to an equally or more robust 25.2 percent growth on a year-on-year basis.

Although a slowdown from the November 2025 levels which had Rs.263 billion, the December credit to the private sector is still a robust level and a more sustainable one.

For six consecutive months, the credit to the private sector rose by above Rs.200 billion a month, reflecting intense appetite for credit in a low interest rates environment.

With the December credit, the licensed commercial banks have seen their total outstanding credit rising by a colossal Rs.2,056.1 billion in 2025, the highest annual amount in the history. The Central Bank last week left its key policy rate steady at 7.75 percent as they saw that any more cutting would reaccelerate the credit growth which isn’t going to be sustainable. The banks are also raising funds in both debt and equity capital and deposits to fund the credit growth, which they expect would continue through 2026. The average prime lending rate, the benchmark rate for lending fell by a further 2 basis points last week to settle at 8.88 percent.

But the average weighted fixed deposit rate as expected rose by 10 basis points in December to 8.41 percent as banks started offering slightly higher rates to woo deposits to build liquidity for on-lend as the competition is too high.

The rate offered for small and medium sized loans too rose to 11.12 percent from 10.92 percent in November 2025. There could be some uptick in the interest rates in the back half of the year in 2026.

The Central Bank is unlikely to cut rates further which could lead to unsustainable level of growth in credit, causing the rates to rise by their own.