Business

Confidence in Sri Lanka’s financial system has improved in the short term but concerns over medium-term risks persist, with the market participants flagging global economic and geopolitical tensions as the biggest threats, the Central Bank of Sri Lanka (CBSL) said in its latest systemic risk survey. The respondents reported higher confidence levels in the stability of the financial system in the short term compared to the previous survey. However, confidence in the medium term showed a slight decline, according to the CBSL. The biannual survey, conducted between June 27 and July 20, 2025, covered 146 firms, including the licensed banks, finance and leasing companies, insurers, unit-trust managers, stockbrokers, underwriters, microfinance firms and rating agencies. The perceived probability of a high-impact negative event in the financial system was seen to have declined in the short term but edged up in the medium term. Global macroeconomic risks, which include spillovers from a challenging global economic outlook and geopolitical tensions, rose significantly as the risk category expected to have the greatest impact if they materialise. Starting from the second half of 2025, the CBSL revised its risk classification by splitting the previous domestic macroeconomic risks into two distinct categories: fiscal and sovereign-related risks and general domestic macroeconomic risks. Three new sub-risks were also introduced within these categories. The survey, introduced in 2017 by the CBSL’s Macroprudential Surveillance Department, tracks the perceptions of market participants on risks and confidence in the stability of the financial system. It classifies risks into seven broad categories, with 46 sub-risks, including fiscal and sovereign risks, global risks, financial infrastructure risks and risks related to financial institutions.