CBSL's annual Financial Stability Review : 09 key points

The Central Bank of Sri Lanka (CBSL) has released its annual Financial Stability Review (FSR) for 2024, in terms of Section 70(1) of the Central Bank of Sri Lanka Act, No. 16 of 2023.

According to the CBSL, this statutory report provides an assessment of the stability of the financial system, identifies and evaluates the associated risks and vulnerabilities, and outlines the policy measures implemented by the Central Bank and other regulatory authorities.

The report covers data up to June 2024. Following are 09 key points from the summary of the Financial Stability Review;

The overall stabilisation and gradual improvement of domestic macro-financial conditions eased the pressure on the balance sheets of households and institutions to some extent and thereby lessened the risks faced by the financial sector.
The downward rigidity in market interest rates coupled with declining yet elevated yields of Government securities also hampered the progress of financial intermediation.
Financial markets operated with improved stability during the period under review.
The stock market depicted a mixed performance in terms of key indicators.
Yields of Government securities started to increase in August 2024.
The rupee appreciated against the USD during the first eight months of 2024 within the domestic foreign exchange market supported by enhanced inflows, particularly in the form of higher workers’ remittances, tourist earnings and export conversions.
The resilience of financial institutions gradually improved during the first half of 2024 amidst easing macroeconomic conditions as reflected by key financial soundness indicators of the Banking sector, such as credit quality, liquidity and capital adequacy.
Credit growth of the Banking sector witnessed a resurgence particularly in terms of the private sector while the dependence of State Owned Enterprises declined mainly due to the Central Government absorbing certain credit facilities of a major State Owned Enterprise.
The performance of both the Finance Companies sector and the Insurance sector depicted an overall trend consistent with that of the Banking sector, highlighting the impact of improved macro-financial conditions within the financial sector as a whole.