ECONOMYNEXT – Margin loans by Sri Lanaka’s banks have risen from 48 billion rupees to 60 billion rupees, from January to August 2025, Director of the Macroprudential Surveillance Department of the central bank, B H P K Thilakaweera said, indicating a rise of around 25 percent.
Exposure of the banking sector to margin loans is still small compared to overall credit, Central Bank Governor Nandalal Weerasinghe said.
Margin credit is also given by other market intermediaries.
Sri Lanka’s stocks have soared as the economy recovered from the last currency crisis, along with strong demand for credit from a broad range of economic sectors.
Sri Lanka’s central bank released a Financial Stability Reviewwhich showed that the agency was watching a wide range of developments in the financial sector including domestic credit, credit to the state, foreign currency loans, liquidity and possible risks which investors and the public could use.
Stock market volatility has increased in the first eight month of 2025, compared to last year, the Financial Stability Review said.
“Stock market volatility as measured by 20-day moving standard deviation of price indices, exceeded the average volatility levels prevailed in 2024, during the first eight months of 2025,” the report said.
“Both ASPI and S&P SL20 indices recorded their highest volatility levels in January 2025, since April 2022, due to the higher gains in indices during early January and bearish sentiments observed towards end January.
“Geopolitical tensions as indicated by Caldara and Iacoviello Geopolitical Risk (GPR) Index5 remained elevated during the first eight months of 2025 compared to the previous year, likely due to elevated geopolitical uncertainties with rising armed conflicts, trade wars and economic fragmentation.
“Inclined geopolitical tensions may also have contributed to the significant volatility levels observed during the bullish stages as well as the heightened volatility levels during the declining phases.”
Sri Lanka’s stocks have moved up amid increasing confidence and also better earnings in part driven by central banks’ deflationary policy, which has made costs of companies predictable and revenues to go up from actual increases in sales volumes driven by growth real incomes of customers.
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Some companies have also boosted productivity and reduce unit costs further due to lack of inflationary revenues.
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Market analysts have warned that there could be ‘pullbacks’ after a steep upward run.
Sri Lanka also has a history monetary instability, which sudden spikes into crises, typically seen in so-called ‘frontier’ markets, increasing risks for investors, the public and wage earners.
So-called ’emerging’ markets have greater monetary stability with central banks running sounder operating frameworks consistently for extended periods with deflationary policy in some cases, providing lower inflation and exchange rate stability. (Colombo/Oct24/2025)
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