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Central Bank Officials Brief Committee on Public Finance on Private Sector Credit Growth, Inflation Target and Stability of the Banking System
The role of the Central Bank of Sri Lanka, inflation targeting, private sector credit growth, economic growth potential and financial system stability were discussed extensively at a recent meeting of the Committee on Public Finance (COPF), held in Parliament recently under the chairmanship of Dr. Harsha de Silva, Member of Parliament.
The meeting was attended by Hon. Deputy Minister Chathuranga Abeysinghe and Hon. Members of Parliament Ravi Karunanayake, Harshana Rajakaruna, Ajith Agalakada, Nimal Palihena, Wijesiri Basnayake, Sunil Rajapaksa and Thilina Samarakoon. A group of Central Bank officials, including the Governor of the Central Bank of Sri Lanka, Dr. P. Nandalal Weerasinghe, also participated in the meeting.
In accordance with the provisions of Section 80(2)(a) of the Central Bank of Sri Lanka Act, the Governor of the Central Bank, members of the Governing Board and the Monetary Policy Board, as well as Deputy Governors, are required to appear before Parliament or one of its committees once every four months to brief them on the functions of the Central Bank. Furthermore, under Section 26(5), if the Central Bank fails to achieve its prescribed inflation targets for two consecutive quarters, it is required to submit a report to Parliament explaining the situation.
During the meeting, Central Bank officials explained the decision to maintain the headline inflation target, based on the Colombo Consumer Price Index (CCPI), at 5%, and to continue maintaining this target over the next three years. It was also revealed that seven special reports had been submitted to Parliament on occasions when inflation remained below the lower limit of the target range of 3%.
It was stated that the volume of credit extended to the private sector during the first nine months of 2026 amounted to Rs. 2.1 trillion, compared to Rs. 1.9 trillion during the corresponding period in 2025. Approximately 74% of this credit was provided by licensed commercial banks.
However, the Committee drew attention to the increase in the share of short-term loans from 42% to 47%, while the share of long-term loans had declined from 35% to 29%. Discussions also focused on whether bank lending was being adequately channeled towards capital formation, new investments and expanding production capacity. In addition, the Committee sought clarification on the growth of different categories of loans, including mortgage loans and vehicle loans.
The country's long-term economic growth potential was also discussed. The importance of implementing reforms in the trade, labour and land sectors, alongside monetary policy, was emphasized as essential for achieving sustainable economic growth. The development of human capital, improvements in productivity and attracting foreign direct investment were also highlighted as key priorities.
Providing an update on financial system stability, Central Bank officials explained that the banking sector's Stage 3 non-performing loan ratio had declined from 9.7% to 8.8%. They also noted that capital and liquidity levels within the banking system remained above the regulatory requirements.
Regarding NDB Bank, Central Bank officials stated that the forensic audit conducted in relation to the bank, together with the report of the Sri Lanka Accounting and Auditing Standards Monitoring Board, had been referred to the Attorney General on October 15, 2026. They further stated that regulatory measures had been imposed on the bank, including restrictions on dividend distributions, branch expansion and directors' remuneration.
The Committee also focused on institutions illegally accepting public deposits and financial scams involving the fraudulent use of artificial intelligence to create fake images and voices of the Central Bank Governor, the Prime Minister and Members of Parliament.
Central Bank officials pointed out that measures were being taken in coordination with the Telecommunications Regulatory Commission, the Sri Lanka Computer Emergency Readiness Team (CERT), the Police and Meta to prevent such scams.
In addition, the Committee discussed regulatory matters relating to virtual assets and cryptocurrencies, the supervision of banking activities within the Colombo Port City, and the proposed consolidation of state-owned banks.
