The Capitalist – Business Desk
Colombo — Industry and Entrepreneurship Development Deputy Minister Chathuranga Abeysinghe has publicly criticised Sri Lanka’s banking sector, accusing some institutions of prioritising internal profitability over the distribution of concessional credit intended for micro, small and medium enterprises (MSMEs).
In a series of social media posts earlier this week, the Deputy Minister expressed frustration over delays in the Government’s Rs. 95 billion MSME financing initiative, citing official data that show a significant gap between allocated funds and actual disbursement.
Abeysinghe alleged that certain bank branches were actively discouraging applicants, either by redirecting them towards higher-interest internal loan products or claiming that quotas under the concessional schemes had already been exhausted.
“Some bank branches prioritise increasing their own branch profits,” he said, pointing to what he described as systemic bottlenecks within the lending process.
Slow Uptake Despite Available Funds
According to data shared by the Deputy Minister, Rs. 95.686 billion has been allocated across multiple MSME-focused loan schemes for 2026. However, as at 10 March, only Rs. 17.492 billion had been disbursed — representing utilisation of approximately 18%.
Within this broader framework, the Government-funded MSME loan window has allocated Rs. 22.2 billion to participating banks. Of this, Rs. 7.18 billion has been disbursed across 630 loans, indicating a utilisation rate of just over 32%.
The figures suggest that while funding has been made available, the pace of lending remains uneven and, in some cases, significantly delayed.
Diverging Bank Performance
Bank-level data highlight notable disparities in lending behaviour across institutions.
State-owned banks have collectively disbursed Rs. 2.18 billion, with utilisation rates ranging between 11% and 18%. In contrast, several private banks have reached or exceeded their allocated limits. Among them, Commercial Bank has disbursed Rs. 1.027 billion against a Rs. 1 billion allocation (103%), Hatton National Bank Rs. 1.024 billion (102%), and NDB Bank Rs. 400.286 million (100%).
Other institutions reported mixed performance, with utilisation rates spanning from 20% to 96%, indicating that while demand for concessional credit exists, distribution remains inconsistent across the sector.
Profitability vs Lending Appetite
Data from the Central Bank of Sri Lanka show that the banking sector recorded strong profitability in 2025, with cumulative profits after tax rising 19.3% year-on-year to Rs. 369 billion by end-December.
Profits before tax increased 3.7% to Rs. 583.7 billion, supported by a rise in net interest income — up 11.7% to Rs. 1.02 trillion — and a sharp 49.8% increase in non-interest income to Rs. 275 billion. These gains came despite rising operating expenses.
At the same time, the sector’s credit-to-deposits ratio stood at 69.9%, up from 66.3% in 2023 and 63.9% the previous year, suggesting that banks continue to maintain a relatively conservative lending stance. In effect, banks have lent approximately Rs. 70 for every Rs. 100 in deposits, leaving a substantial share of funds in liquid assets and investments.
This indicates that while private sector credit has shown signs of recovery, banks retain significant capacity to expand lending should conditions improve.
Government Response and Process Clarification
Abeysinghe urged MSMEs encountering difficulties in accessing funds to seek assistance from Industrial and Entrepreneurship Officers at the Divisional Secretariat level. He noted that once applications are submitted by banks, approvals from the Finance Ministry are typically processed within two weeks.
The MSME financing framework consolidates multiple loan schemes under a unified structure, with funds channelled through 16 public and private banks. Applications are processed via a system that includes field-level verification and digital approvals routed through the Development Finance Department.
The initiative is positioned as a central pillar of Sri Lanka’s economic recovery strategy, combining concessional lending, interest subsidies, and credit guarantees to address long-standing financing constraints faced by small businesses.
However, the latest data and the Deputy Minister’s remarks underscore ongoing challenges in translating policy intent into on-the-ground credit delivery — raising questions about alignment between public financing objectives and banking sector incentives.
