HNB clinches top position in K Seeds Investments’ Ranking Report

K Seeds Investments has identified Hatton National Bank as the best-performing bank under the 1st category among the 16 banks in Sri Lanka through a ranking carried out based on their financial performance for the year ended 2025. 

Licenced banks in the report have been categorised based on the Banking Act Directions No. 01 of 2025 issued by the Central Bank of Sri Lanka, which replaces the previous directions where the banks were categorised only based on the size of the asset base. The new rule requires the banks to be categorised based on a number of criteria, including size, interconnectedness, substitutability/financial institution infrastructure, complexity, which ranks them in their respective categories among their peers based on nine financial metrics, which are calculated from the annual and quarterly reports. 

HNB topped the overall spectrum by belonging to “Category 1” (Domestic Systematically Important Banks). Categories 2A and 2B represent the banks having an asset base more than Rs. 250 billion and less than 250 billion.

After several years of extreme market volatility, political uncertainty, and socioeconomic pressure, 2025 marked a decisive turning point for Sri Lanka’s economy. During the year under review (1 January to 31 December 2025), key macroeconomic indicators improved notably, supported by moderating inflation, a more stable interest rate environment, a relatively steady Sri Lankan Rupee, and continued progress on post-debt restructuring reforms.

Ending the year on a constructive note, sovereign risk perceptions eased further following an earlier rating upgrade by Fitch Ratings, which maintained Sri Lanka’s rating at CCC+. This gradual recovery momentum supported rating stability across financial institutions and strengthened investor and depositor confidence, thereby enhancing overall financial system stability.

The banking sector benefited directly from these conditions. Lower inflation and more predictable interest rates improved credit affordability, boosting lending activity across corporate and retail segments as borrowing costs declined. Stronger credit demand supported economic expansion while also improving borrowers’ repayment capacity. Meanwhile, relative exchange rate stability reduced pressure on foreign currency exposures, particularly for banks with external liabilities.

Asset quality also saw a gradual recovery. Non-performing loans (NPLs), which had risen sharply during the crisis, began to moderate as households and businesses regained financial stability. This allowed banks to strengthen balance sheets, reduce impairment pressures, and refocus on growth-oriented lending.

However, the year also brought an unforeseen disruption. The impact of Cyclone Ditwah in December 2025 caused significant economic and social disruption, affecting businesses, infrastructure, and household income levels. Despite this, the banking sector demonstrated strong resilience, underpinned by improved capital positions, better risk management practices, and a more stable operating environment. As Sri Lanka continues its recovery, maintaining macroeconomic discipline and advancing structural reforms will be critical to sustaining long-term financial sector stability and inclusive economic growth.

The report ranks the banks according to their financial results released through annual and quarterly reports on the Colombo Stock Exchange across nine key performance indicators (KPIs) – cost to Income ratio, return on equity, return on assets,, credit to deposits, net interest margin, impaired loans (stage 3), impairment to interest earnings assets, CASA andloan growth. These nine KPIs are weighted equallyand an overall ranking is arrived at based on the aggregate score for each category.

K Seeds Investments is a Colombo-based financial advisory firm, providing strategic investment and financial analysis services to businesses across various industries. The company specialises in equity research, company valuation, sector and macroeconomic analysis, and capital-raising support.