Banking

Sri Lanka banks cut dollar balances, finances foreign governments, regional firms

Sunday October 12, 2025 4:08 pm

ECONOMYNEXT – Sri Lanka’s banks have raised more foreign currency deposits locally, cut foreign borrowings and increased fx loans and investments in the year to June 2025, a Financial Stability Report issued by the central bank said.

Sri Lankan banks had forex balances of 2.9 billion US dollars in foreign institutions as of the end of 2Q 2024, down 790.2 million dollars from a year earlier.

Domestic systemically important banks had balances of 1.4 billion US dollars and foreign banks 1.2 billion dollars, the report said.

Foreign currency liabilities of banks had grown 7.6 percent to 13.3 billion dollars by end June 2025, up from 3.6 percent the previous year, mainly driven by forex deposits, which had grown since the second quarter of 2023.

Banks had cut foreign borrowings by 11.2 percent in the year to June, reducing or not renewing credit lines, leading to an increase in net foreign assets.

Sri Lanka’s banks instead of borrowing to lend domestically – as they had before the potential output targeting crisis which led to sovereign default – had been investing their dollar balances in foreign banks in syndicated loans and foreign government securities.

Analysts had called for Sri Lanka’s government to structure syndicated loans with banks to use some of their dollar loans and settle maturing debt instead of using proceeds of rupee loans and buying dollars from the central bank which were raised through swaps.

Sri Lanka should structure fx syndicated loans with local banks, avoid CB dollar swaps

Flushed with dollars after monetary stability was restored, Sri Lankan banks had financed foreign entities including the State Bank of India with the dollars.

Sri Lanka banks financing Indian firms with excess dollar balances

Sri Lanka’s Sampath Bank helps finance State Bank of India $750mn loan

Sri Lanka’s HNB helps finance syndicated loan for Singapore energy firm

Sri Lanka banks also finance foreign governments.

“The banking sector significantly diverted FCY funds from balances with financial institutions abroad to FCY loans and investments in foreign sovereign securities,” the central bank report said.

“…[I]ncreased investments by banks in foreign sovereign securities contributed to a notable increase in FCY investments.

“D-SIBs were the largest investors in these securities, accounting for 84.8 percent. While investments in foreign sovereign securities carry minimal credit risk, they remain subject to exchange rate risk.”

“Moreover, the distribution of such securities across measurement categories by end Q2 of 2025 suggests a tilt towards Fair Value Through Other Comprehensive Income (FVTOCI) holdings, indicating a strategy of
maintaining flexibility in liquid sovereign investments while recognising fair value changes in equity.”

Sri Lankan banks ended with large dollar balances after rates were hiked and monetary stability was restored and the government repaid Sri Lanka Development Bonds in rupee securities.

Banks then used their deposits to buy dollars instead of giving fresh loans, clearing a mis-match in their books (negative net open position) against dollar deposits or credit lines.

Banks also used rupee deposits (instead of giving credit) to buy dollars and cover their provisions for ISB losses, ending up with billions of dollars in foreign banks including NOSTRO accounts. They were also used to pay down maturing credit lines.

As a result of paying down foreign credit lines, getting more deposits and financing foreign governments and other entities, net foreign assets were now positive.

“…[W]ith the higher expansion in FCY assets compared to FCY liabilities, net FCY assets of the banking sector significantly grew by 42.5% y-o-y to USD 1.5 bn at end Q2 of 2025,” the financial stability report said.

“Accordingly, the net FCY assets of the banking sector surpassed the pre-crisis level during the period under review.”

Sri Lankan banks borrowed heavily abroad after the end of a civil war and lent to the government, including when flexible inflation targeting/potential output targeting triggered forex shortages.

Macroeconomists also encouraged banks to borrow abroad and gave forex risk guarantees through central bank inflationary swaps.

When the currency eventually collapsed from open market operations for potential output targeting, the central bank made record forex losses as reserves were negative.

Analysts have pointed out that some of the inflationist policy errors that led to the external default have now been systematized in the controversial new monetary law.

Some of the losses were recouped when the rupee appreciated from 360 to 300, as net foreign assets were then negative.

Ironically the central bank now stands to make profits as inflationists debase the rupee amid record currency account surpluses, putting pressure on households including those in poor and marginal income brackets, as well SOE finances and government debt overall.

Since Sri Lanka has a very high private savings rates it is easy to build reserves, childishly simple to have a strong exchange rate and finance itself, as long as parliament can bring laws to control the central bank’s inflationist operating frameworks, analysts have pointed out. (Colombo/Oct12/2025)

Markets

Sri Lanka stocks close down 0.60-pct, dragged by HNB and LOLC

Friday November 13, 2026 3:28 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed down on Friday, CSE data showed, with the benchmark All Share Price Index moving down 0.60 percent.

The ASPI was down 133.22 points at 22,024.18, while the more liquid S&P SL20 was down 1.06 percent, or 67.55 points, at 6,298.02.

The ASPI ended the week up 784.53 points from last Friday.

Positive contributors to the ASPI were Dialog Axiata (up 0.40 percent at 50.20 rupees), Distilleries Company of Sri Lanka (up 0.52 percent at 58.30 rupees), Aitken Spence (up 3.60 percent at 151.00 rupees), Ceylon Tobacco Company (up 1.05 percent at 1,828.50 rupees), and LOLC Finance (up 1.96 percent at 5.20 rupees).

Hatton National Bank (down 1.88 percent at 403.75 rupees), Richard Pieris and Company (down 6.21 percent at 27.20 rupees), LOLC Holdings (down 2.17 percent at 405.00 rupees), Sampath Bank (down 1.91 percent at 154.00 rupees), and Singer (Sri Lanka) (down 2.40 percent at 77.30 rupees) were top negative contributors.

Market turnover was 3.23 billion rupees. Capital goods led turnover with 869.21 million rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka MP slams budget speech for omitting Tamil national question

Friday November 13, 2026 2:56 pm

ECONOMYNEXT – A Sri Lanka legislator has voiced strong disappointment that the President’s budget speech failed to make a single mention of the Tamil national question.

“It is very unfortunate that in His Excellency the President’s speech, there has not been a single word mentioned about the Tamil national question. Not a single word,” Shanakiyan Rasamanickam said.

“A budget speech generally, is a policy direction of the government for the next year. The budget speech is not only a statement of the country’s fiscal position or the economy’s position. It is the country’s, the government’s, plan, or what the government plans to do the following year. That’s a policy statement.”

Former presidents would at least mention the Tamil question even if it was not resolved, he said.

Former President Ranil Wickremesinghe in his speech, in his policy statement, he would mention: “The Tamil national question must be resolved,” Rasamanickam said.

Former Presidents Maithripala Sirisena and Gotabaya Rajapaksa also mentioned that the national ethnic question must be resolved, he added.

“Every President, every country’s Head of State, in their policy statements, have acknowledged the fact that there is an unresolved national issue, the Tamil national question, that it needs to be resolved. Various governments have proposed various mechanisms; none of them have succeeded, but at least it was mentioned.”

This year’s budget made allocations for the Office of Missing Persons, and the Office of Reparations.

“But the domestic mechanism is a mechanism that the victim community has rejected. So you all are allocating money to a mechanism where the victim community is not going to be part of.”

Last year’s budget 1 billion was allocated to be spent on the Trincomalee and Jaffna airports.

“Where was that 1 billion for the Trincomalee and Jaffna airports spent last year?”

“The trajectory of this government, Honourable Deputy Speaker, is worrying to me. It’s really worrying to me. Because if the objective is to say that there is no Tamil national question, if the objective is to say that you all have resolved any ethnic issue that this country faced, then Honourable Deputy Speaker, then I think the Tamil people will teach this government a very, very, very harsh lesson in the future.” (Colombo/Nov13/2026)

Bonds & Forex

Sri Lanka sells extra Rs6.5bn Treasury bills after auction

Friday November 13, 2026 12:32 pm

ECONOMYNEXT – Sri Lanka has sold 6,500 million rupees of treasury bills offered on tap at an average rate of 9.95 percent, the public debt management office said, bringing the total of bills sold in the week to 85.562 billion rupees.

The issue offered 90 billion.

Total market subscription was 6.5 billion rupees.

The debt office sold a 12-month bill at 9.95 percent.

On Wednesday (11) the debt office raised 79 billion rupees of 3, 6 and 12 month bills after offering 90 billion.

The settlement date is November 13. (Colombo/Nov13/2026)

Construction and Real Estate

Access Engineering Sept quarter group net profit surges 200-pct to Rs4.75bn

Friday November 13, 2026 12:15 pm

ECONOMYNEXT — Sri Lanka’s Access Engineering PLC recorded a group net profit attributable to equity holders of Rs. 4.75 billion for the quarter ended September 30, surging 200 percent from Rs. 1.58 billion a year earlier, interim accounts showed.

Basic earnings per share rose to Rs. 4.08 for the September quarter, up from Rs. 1.58 previously.

Quarterly group revenue expanded 36 percent to Rs. 20.39 billion from Rs. 14.94 billion, underpinned by condominium property handovers — reflected in inventories dropping Rs. 7.69 billion since March to Rs. 35.71 billion — alongside strong automobile sales and steady civil engineering execution.

Cost of sales rose at a slower 27 percent to Rs. 14.34 billion, lifting gross profit by 64 percent to Rs. 6.05 billion and expanding gross margins to 29.7 percent from 24.7 percent.

Other income jumped 144 percent to Rs. 259.9 million, while administrative expenses rose 75 percent to Rs. 1.14 billion, leaving operating profit up 64 percent at Rs. 5.16 billion.

However, finance costs more than doubled, rising 107 percent to Rs. 1.18 billion on elevated group borrowings of Rs. 43.74 billion, partly offset by finance income climbing 302 percent to Rs. 42.2 million.

Share of results from equity-accounted investees rose 122 percent to Rs. 26.7 million, pushing pre-tax profit up 56 percent to Rs. 4.05 billion.

Income tax swung to a net reversal of Rs. 186.6 million from an expense of Rs. 804.1 million, boosted by deferred tax assets on unrelieved losses from a 100 percent enhanced capital allowance claimed by 60 percent-owned radiopharmaceutical subsidiary Access Medical Tracers (Private) Limited.

Total period profit rose 136 percent to Rs. 4.24 billion, with non-controlling interest declining 24 percent to Rs. 164.9 million following last year’s buyout of minority shareholders in Harbour Village (Private) Limited.

No separate exchange gain or loss was itemized in quarterly earnings, though foreign currency translation via associates recorded a Rs. 17.4 million loss in other comprehensive income, alongside USD 16.6 million in corporate guarantees.

Notes also flagged an expected Rs. 1.45 billion recovery from the terminated South Asia Commercial and Logistics Hub project, a Rs. 225 million post-quarter legal settlement already provided for, and a Supreme Court appeal over a 2011/12 PAYE tax ruling.

Group assets stood at Rs. 132.4 billion as of September 30, with net asset value per share at Rs. 46.70, as the Employees’ Provident Fund raised its stake to 5.69 percent.

Access Engineering shares closed at 80.00 rupees at the end of September and are currently trading around 85.80 rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka private sector says timely implementation of Budget 2027 key

Friday November 13, 2026 11:43 am

ECONOMYNEXT – Private sector body, The Ceylon Chamber of Commerce, said it was encouraged by the broad direction of Budget 2027, noting that it reinforces Sri Lanka’s commitment to economic transformation while maintaining policy continuity, macroeconomic stability, and fiscal discipline.

“This continuity is particularly important as the country seeks to transition from economic stabilisation to a more durable, investment-led growth trajectory.”

The chamber also noted several areas where the Budget could have placed greater emphasis to strengthen the country’s growth prospects.

“In particular, there is a need for a stronger focus on attracting Foreign Direct Investment (FDI), accelerating factor market reforms, particularly in land and labour, and fast-tracking public procurement reforms to improve the efficiency and speed of project implementation.

“More targeted and actionable proposals could have been introduced to unlock the potential of sectors with significant growth opportunities, including tourism, agriculture, IT/BPO and logistics.”

The chamber said the budget contains positive measures aimed at enhancing competitiveness, and external sector resilience, while presenting opportunities for focus on sectors that can accelerate growth.

“A number of the key structural reforms identified in last year’s Budget have been carried forward and strengthened, providing greater certainty and predictability to businesses and investors.

“These include the continued implementation of the Trade National Single Window (TNSW), the phased removal of para-tariffs, the rollout of the Digital ID framework, efforts to expand market access through new Free Trade Agreements (FTAs), the strengthening of one-stop-shop investment facilitation mechanisms, progress on Customs reforms, the expansion of Bandaranaike International Airport (BIA), enhanced financing support for SMEs, and reforms relating to the management of State-Owned Enterprises.”

The CCC said that more than 20 proposals submitted by it have been reflected in Budget 2027.

These include measures to strengthen investor facilitation through the establishment of a professionally managed investment promotion agency; continued efforts to improve trade facilitation and export competitiveness; the Government’s consideration of a successor programme with the International Monetary Fund (IMF); accelerated progress on key legislative reforms; the expansion of digital government services; and the promotion of cashless payments and broader digital adoption. The Budget has also captured several priorities relating to energy security, including the accelerated deployment of Battery Energy Storage Systems (BESS) and investments in fuel storage infrastructure, initiatives to optimize underutilized agricultural land, measures to support the expansion of the digital economy and the IT/BPO sector, and tax reforms to support exporters, including the acceptance of newly VAT-registered exporters as eligible exporters.

“The inclusion of these priorities reflects the value of sustained public-private dialogue and demonstrates increasing alignment between national policy objectives and the needs of a competitive, export-oriented economy.

“The priority now must be effective and timely implementation to translate policy commitments into investment, competitiveness, exports and sustainable growth.” (Colombo/Nov13/2026)