• NPL rate drops to 12.8%, indicating improving financial health
• Profitability surges as net interest income soars

Sri Lanka’s banking sector saw a continued improvement in non-performing loan (NPL) ratios during the second quarter of 2024. The NPL rate decreased to 12.8% from 13% in the previous quarter, indicating a gradual decline in default risk, according to the Central Bank of Sri Lanka.

Accordingly, the NPL loans declined to Rs. 1,402.6 billion recording a 1.4% decrease on a year-on-year basis.

Total gross loans and receivables stood at Rs. 11,081.9 billion, while provisions for NPLs amounted to Rs. 729.3 billion.

Despite an overall improvement, certain sectors, such as tourism, experienced a slight increase in NPLs to 40%, and the transportation industry stayed around 30% in the first two quarters.

The banking sector’s profitability improved significantly, with a profit-after-tax of Rs. 111.8 billion, up 38.8% year-on-year. This was primarily driven by a surge in net interest income, which increased to Rs. 395 billion from Rs. 188 billion in the first quarter.

Meanwhile, gross income stood at Rs. 491 billion at the end of first half of the year.

The sector’s liquidity position also strengthened, with both the liquidity coverage ratio and net stable funding ratio showing significant improvements compared to the previous year, where the liquidity coverage ratio in rupees stood at 340%.