Lending rates for most prime customers fall to nearly four-year low

Sri Lanka’s lending rates have been on a rapid descent since last year, when the easing monetary policy began filtering through market interest rates, reflecting what is seen as a swift and effective transmission of monetary policy in recent times.
As a result, the prime lending rates, the benchmark average used by the licensed banks when pricing loans for their most creditworthy customers, fell by as much as 26 basis points last week, reaching levels last seen in 2022, when the Sri Lankan economy was showing signs of strain, before coming to an abrupt halt in March.
The Average Weighted Prime Rate stood at 7.93 percent by the end of last week, a level last recorded on January 7, 2022.
Some banks offered prime rates as low as 7.61 percent during the week, signalling that certain large-ticket facilities for the most credible customers were being priced below the average.
The prime rate serves as the closest benchmark for the behaviour of lending rates across the economy and also indicates overall appetite for credit.
Despite the relatively rapid decline in the prime rate, concerns have emerged in some quarters that the rates for small and medium-sized enterprises are not falling as quickly as they should.
In response, the Central Bank began compiling and publishing the rates offered to micro, small and medium enterprises a few weeks ago, highlighting where the sector’s lending rates are currently hovering.
According to the Central Bank, the Average Weighted SME Rate and Average Weighted New SME Rate were recorded at 11.66 percent and 10.79 percent, respectively in August 2025, compared with 11.78 percent and 10.77 percent in July.
The first benchmark measures rates on all outstanding rupee loans extended by the licensed banks to the MSME sector, while the latter captures new rupee loans granted during a given month.
Sri Lanka has extended total private sector credit of Rs.1,128 billion in the first eight months of 2025, the highest for any year to date.