Private sector credit rebounds in May, surpasses Rs. 11 t

• Net credit to private sector up 28% YoY; Govt. and State corporations decline YoY

Private sector borrowing from the banking system regained momentum in May, with total outstanding credit increasing by Rs. 238.1 billion month-on-month (M-o-M) to exceed Rs. 11 trillion following the moderation recorded in April.

May was the fourth-highest month for private sector borrowing in the past year.

In the last week of May 2026, the Central Bank of Sri Lanka (CBSL) raised monetary policy rates for the first time since March 2023, increasing the Overnight Policy Rate (OPR) by 100 basis points (bps) to 8.75%. The Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR), which are linked to the OPR with predetermined margins of ± 50 bps, were increased to 8.25% and 9.25%, respectively.

This was done to curb credit-driven import demand after the rupee depreciated sharply against the US dollar that month.

As of end-March 2026, the rupee had depreciated 1.4% year-to-date (YTD), weakening further to 2.9% as of end-April as the Middle East war continued to drag on. By May, the rupee depreciated sharply, ending the month with a 5.4% YTD depreciation which continued to slide to 8% by end-June. As of last Friday, the domestic currency had depreciated 7.9% YTD against the greenback. 

Some critics argued that the CBSL’s dollar purchases to build reserves had increased rupee liquidity in the market, leading to import demand. However, the CBSL was a net seller of $ 210 million dollars.

The CBSL returned to net purchases of foreign exchange in June, buying a net $ 70.5 million as pressure on the rupee eased after the local currency came under strain in May. The June purchases lifted the CBSL’s cumulative net foreign exchange purchases to $ 556.4 million in the first six months of 2026, following record net purchases of $ 2 billion in 2025.

According to the latest monetary data released by the CBSL, total outstanding banking sector credit to the private sector rose to Rs. 11.04 trillion in May from Rs. 10.8 trillion in April, reflecting a 2.2% M-o-M increase. On a year-on-year (YoY) basis, private sector credit growth accelerated to 27.8% from 27% in April.

Lending by Domestic Banking Units (DBUs) continued to account for the bulk of private sector credit, increasing by Rs. 233.9 billion or 2.3% M-o-M to Rs. 10.47 trillion in May from Rs. 10.24 trillion in April. Annual growth in DBU lending also strengthened to 30.2% from 29.1% in April.

Credit extended through Offshore Banking Units (OBUs) increased by Rs. 4.2 billion or 0.8% M-o-M to Rs. 563.8 billion in May from Rs. 559.6 billion in April. Despite the monthly increase, outstanding OBU credit remained below year-earlier levels, contracting by 4.3% YoY, compared with the 2.2% decline recorded in April.

Net credit to the Government from the banking system rose by Rs. 10.7 billion in May to Rs. 8.16 trillion from Rs. 8.15 trillion in April. However, on an annual basis, Government credit remained in contraction, declining by 3.4% YoY compared with a 2.7% contraction in April.

Outstanding credit to public corporations and State-owned enterprises (SOEs) edged up by Rs. 0.8 billion to Rs. 493.5 billion in May from Rs. 492.7 billion in April. Nevertheless, lending to public corporations continued to contract sharply on a YoY basis, declining by 22.6% compared with a 24.7% contraction in April.

The CBSL data also showed broad money (M2b) expanded by 12% YoY in May, up from 11.6% in April. Reserve money increased by 16.1% YoY, while M2 grew by 11.9%, indicating continued expansion in monetary aggregates alongside the pick-up in private sector credit.