Net Foreign Assets (NFAs) in Sri Lanka banking sector turned positive for the first time since April 2020, reaching Rs. 636.3 billion in 1H24 due to the buildup of foreign assets, according to the Central Bank of Sri Lanka (CBSL).

According to the Monetary Policy report, NFAs of licensed commercial banks (LCBs) improved due to the build-up of foreign assets while settling foreign currency exposures to non-residents.

Moreover, it said that NFAs of the Central Bank was built up through the net purchase of foreign exchange from the domestic foreign exchange market, amidst improved external sector performance, leading to enhanced gross official reserves.

NFA turned positive in by Rs. 1.3 trillion in 2023, while it contracted by Rs. 785 billion in 2022.

Also, credit to the private sector expanded by around Rs. 146 billion during 1H24, recording a year-on-year growth of 6.2% by the end of June 2024.

Private credit expansion was largely consumption oriented, an improvement was observed in credit extended to the other sectors of the economy as well.

Further, CBSL said that net credit to the government (NCG) by the banking system contracted during 1H24 to Rs. 196 billion, mainly due to the contraction in NCG by the Central Bank, while NCG by LCBs recorded an increase, reflecting the increase in their investments in government securities.

NCG by the Central Bank reduced during 1H24 mainly due to the maturity of treasury bills and the reduction in the use of the standing lending facility (SLF) by LCBs.

Credit granted to state-owned business enterprises (SOBEs) by LCBs contracted during 1H24 to Rs. 60.4 billion, mainly due to net repayments by the major SOBEs along with the valuation impact of the rupee appreciation recorded during the period.