As Sri Lanka celebrated the festive season at the close of 2024, the nation’s financial sector and digital transactions landscape showcased notable developments. This period marked a significant stride towards economic resilience and digital transformation, reflecting both challenges overcome and opportunities embraced.
Financial Sector: Stability Amidst Recovery
In 2024, Sri Lanka’s financial sector demonstrated signs of stabilization following previous economic challenges. The banking sector maintained capital and liquidity buffers above regulatory thresholds, ensuring compliance with prudential requirements. Total assets of the banking sector grew, supported by increased investments and a rise in loans and receivables. Deposits, constituting the largest funding source, continued to expand, indicating growing public confidence.
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While the Non-Performing Loans (NPL) ratio improved, it remained at an elevated level, signaling areas requiring continued attention. Profitability saw a significant uptick, attributed to increased net interest income and the reversal of impairment charges from the restructuring of International Sovereign Bonds (ISBs). The finance companies sector also displayed resilience, with adequate capital and liquidity buffers, and an improved asset base driven by loan portfolio expansion.
Central Bank of Sri Lanka
Digital Transactions: A Surge During Festivities
The festive season witnessed a remarkable increase in digital transactions, underscoring a shift in consumer behavior towards cashless payments. Visa reported a 40% rise in cross-border card transactions in physical stores compared to the previous year, with debit card usage increasing by nearly 50%. Domestic card spending surged over 35%, driven by higher debit card usage both online (~55%) and in-store (over 40%) .
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This trend reflects the growing acceptance and trust in digital payment methods among consumers and merchants alike, facilitated by the expansion of digital infrastructure and payment platforms.
Infrastructure Enhancements and Innovations
The Central Bank of Sri Lanka (CBSL) continued to promote digital payments through initiatives like the Digital Payments Promotion Campaign, aiming to enhance financial inclusion and consumer protection . The integration of the national payment infrastructure with international networks progressed, enabling seamless transactions for both domestic and international users.
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Central Bank of Sri Lanka
The LANKAQR system, a national QR code payment platform, expanded its reach, supporting payments from various account types and integrating with international payment systems like India’s Unified Payments Interface (UPI). This integration allows Indian tourists to make payments at numerous merchant points across Sri Lanka, boosting tourism and cross-border commerce .
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Challenges and the Road Ahead
Despite these advancements, challenges persist. The NPL ratio, though improved, remains high, necessitating ongoing efforts to enhance credit quality. Adoption barriers for digital payments, such as transaction fees and limited access to technology in rural areas, require targeted strategies to ensure inclusive growth.
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Central Bank of Sri Lanka (Digital Transactions)
Looking forward, the focus should be on sustaining financial stability, expanding digital infrastructure, and fostering an environment conducive to innovation. Collaborative efforts between regulatory bodies, financial institutions, and technology providers will be crucial in navigating the evolving financial landscape.
In conclusion, the festive season of 2024 highlighted Sri Lanka’s progress in fortifying its financial sector and embracing digital transactions. While challenges remain, the momentum gained sets a promising trajectory towards a resilient and digitally empowered economy.
