• Loan growth is driven by vehicle imports, low interest rates, and improved economic outlook
• Demand is rising across all sectors, and non-performing loans are expected to decline

Sri Lanka’s demand for loans in the banking sector is expected to grow rapidly in the third quarter of 2025, mainly driven by the resumption of vehicle imports along with low and stable interest rates, the Central Bank said.

The Credit Supply Survey for Q2 by the Central Bank stated that, during Q3 2025, loan demand is expected to increase across all sectors, driven by rising vehicle imports, low interest rates, increasing consumer confidence, and a favourable business and economic outlook.

Loan demand continued to rise across all sectors during Q2 2025, increasing from an index value of 52.1 in Q1 to 67.6 in Q2, with expectations of further growth to 80.2 in Q3.

“Low and stable interest rates, political stability, improved business activity, the resumption of vehicle imports, price stability, stable exchange rates, and overall improved macroeconomic conditions may have contributed to the continued increase in loan demand across all sectors,” the Central Bank said.

Demand for loans grew, especially in the retail sector in Q2 and is expected to continue to drive the demand in the third quarter, while the corporate sector takes the second place in loan demand.

The Central Bank said increased wages and reduced interest rates may have contributed to the rise in loan demand in the retail sector.

While the revival of the tourism sector, improvements in domestic manufacturing, and the resumption of vehicle imports may have contributed to the observed increase in loan demand across the SME and corporate sectors.

Further, the Central Bank said that it observed a marginal increase in non-performing loans (NPLs) in the retail sector may be due to high cost of living and low disposable income.

During 2025 Q3, NPLs are expected to decline across all sectors, driven by strong collection efforts, continuation of flexible payment options, anticipated interest rate reductions, improved cash flows, continued economic stabilisation, business recovery, and favourable macroeconomic conditions.