Finance companies record Rs.277bn credit expansion in 2024

• Boosted by lower rates and economic recovery

Sri Lanka’s banks and finance companies ended 2024 on a strong note, disbursing a substantial volume of loans to the private sector as declining interest rates and a recovering economy reignited credit demand.

According to the Central Bank of Sri Lanka’s Annual Economic Review 2024, licensed finance companies recorded a significant Rs.277.1 billion increase in outstanding private sector credit last year, reflecting robust growth of 21.0 percent.

By comparison, licensed commercial banks extended Rs.789.6 billion in private sector credit, marking a 10.7 percent increase. This represented a sharp turnaround from 2023, when soaring interest rates and a contracting economy curtailed lending activity.

Licensed specialised banks also expanded their private sector loan portfolios, though modestly, with credit rising by Rs.27.9 billion, a 2.5 percent increase.

A closer look at the data shows that consumer credit was the primary driver of loan growth among licensed finance companies, with demand surging for gold-backed loans, personal loans, and vehicle leasing. The sector benefited from improved liquidity conditions throughout the year.

Meanwhile, private sector credit distribution across key economic sectors remained healthy, reflecting stronger business confidence and a broad-based recovery in economic activity.

Credit to the broader industrial sector, which accounts for 39.7 percent of total outstanding private sector credit at licensed commercial banks, grew by 8.4 percent in 2024. Lending was spread across multiple subsectors, including construction, textiles and apparel, chemicals, petroleum, pharmaceuticals and healthcare, rubber and plastic products, fabricated metal goods, machinery, transport equipment, and food and beverages.

Construction, in particular, posted a 5.5 percent increase in credit flows, emerging as a leading contributor to industrial sector growth. The uptick signals a gradual revival in construction activities after a prolonged period of subdued activity.

The services sector, representing 27.4 percent of total private sector credit at commercial banks, recorded a 12.3 percent growth in 2024. Key drivers included wholesale and retail trade, financial and business services, communications and information technology, shipping, aviation, and freight forwarding.

The agriculture sector, accounting for 7.3 percent of total outstanding private sector credit at licensed commercial banks, also recorded positive momentum, growing by 8.2 percent last year. Lending to the sector was supported by improving weather conditions, enhanced market access, and a broader recovery in rural economic activity.

Within agriculture, notable credit flows were directed toward paddy cultivation, other food crops, fisheries, and livestock farming, aligning with national efforts to strengthen domestic food security and reduce import dependency.

The maturity-wise analysis of private credit showed that short to medium term credit was higher than that of the long term credit. But the Central Bank expects a sustained growth in mid to long term credit to occur with the continued revival of economic activities.