Business

‘Bad Bank,’ Big Stakes: Sri Lanka’s Rs. 300bn gamble on growth

Published

4 months ago

2026/02/12

The top table at the SLCSMI press conference.

Sri Lanka’s small and medium enterprise (SME) sector—responsible for 52 percent of GDP and employing nearly half the national workforce—has become the next decisive test of the country’s fragile economic recovery.

A proposal to establish a Rs. 300 billion “Bad Bank” to absorb distressed SME loans now places policymakers at a crossroads: act boldly to revive credit and growth, or risk entrenching stagnation in the real economy.

The Sri Lanka Chamber of Small and Medium Industries (SLCSMI) on Tuesday told journalists that they had unveiled a detailed blueprint aimed at restructuring an estimated Rs. 460 billion in non-performing loans (NPLs), much of it concentrated among SMEs battered by successive shocks—from the Easter Sunday attacks and the pandemic to sovereign default and climate-related disruptions such as Cyclone Ditwah.

While headline indicators suggest macroeconomic stabilisation, including lower inflation, improved reserves and a profitable banking sector, credit transmission to smaller enterprises remains severely constrained, Chambers think tank pointed out.

“This is not about rewarding defaulters,” said SLCSMI President Prof. Rohan De Silva. “It is about protecting the productive backbone of the economy. If SMEs collapse, the consequences will extend far beyond individual balance sheets.”

Despite strong liquidity and a return to profitability in the banking system, thousands of SMEs remain blacklisted at the Credit Information Bureau (CRIB), unable to access fresh working capital.

The Chamber argues that unless distressed assets are separated from viable enterprises, banks will remain structurally risk-averse, prolonging the paralysis in private sector credit growth.

The proposed “Bad Bank” would function as a specialised rehabilitation vehicle, purchasing or warehousing toxic SME loans and granting viable firms a five-to-ten-year restructuring window, shielded from parate execution, to rebuild cash flows. Senior Vice President Colvin Fernando described the initiative as an economic circuit-breaker rather than a bailout. “These are not failed enterprises,” Fernando said.

He added:”They are businesses hit by extraordinary external shocks. Unless we ring-fence these distressed loans, credit transmission will remain paralysed.”

The concept draws on international precedents where asset management companies were deployed after systemic crises. Yet such mechanisms succeed only when governed by strict asset valuation discipline, professional management and insulation from political interference. Without these safeguards, they risk becoming vehicles for concealed subsidies or fiscal leakage.

The most contentious element of the Chamber’s proposal lies in its funding model. It calls for a hybrid structure combining low-cost international financing, a levy on commercial bank profits and the utilisation of unutilised balances from the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF).

Prof. De Silva argues that the banking sector, having restored profitability partly through elevated interest margins during the crisis years, has both the capacity and systemic responsibility to contribute. “The banking system has returned to strong profitability,” he said. “A structured contribution toward SME rehabilitation is not punitive—it is an investment in systemic stability.”

The suggested mobilisation of pension fund balances, however, is likely to provoke scrutiny over governance and fiduciary safeguards, while a levy on bank profits may raise investor sensitivity in a sector that has only recently regained confidence.

Fernando acknowledged the risks, emphasising that transparency and strict eligibility criteria would be essential. “This must be professionally managed, transparent and focused strictly on viable enterprises. Without discipline and accountability, the entire purpose would be defeated,” he cautioned.

Adding urgency to the debate is the Government’s decision to lower the VAT registration threshold to Rs. 36 million annually from April 1, 2026, drawing more small firms into the tax net. The Chamber warns that tightening tax compliance while credit remains restricted could create a double squeeze. “You cannot increase tax burdens and restrict financing simultaneously without economic consequences,” Prof. De Silva observed, describing the timing as highly sensitive.

Immediate Past President Mohideen Cader underscored the scale of the stakes. With SMEs contributing 52 percent to GDP and already under severe strain, he warned that inaction would result in irreversible economic scarring.

The macroeconomic logic is clear: without restoring SME balance sheets, private investment and employment growth are unlikely to regain momentum. Yet the countervailing risk is equally apparent. A poorly designed vehicle could create moral hazard, transfer private losses onto public shoulders and introduce new contingent liabilities into an economy still emerging from sovereign default.

Sri Lanka’s IMF-backed reform programme has so far focused on fiscal consolidation and debt sustainability. The SME “Bad Bank” proposal introduces a more complex phase in the recovery narrative—one that shifts attention from stabilisation to growth. The question confronting policymakers is whether the economy can sustain recovery without unclogging the credit arteries that feed its most labour-intensive sector.

The Rs. 300 billion proposal is, in essence, a calculated gamble that repairing SME balance sheets will unlock lending, revive investment and restore economic momentum. If executed with rigour, transparency and independence, it could serve as a bridge from crisis management to expansion. If mishandled, it risks deepening vulnerabilities in a system that has only recently regained its footing. For an economy seeking to move beyond stabilisation, the stakes could hardly be higher.

By Ifham Nizam

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Business

Climate compliance pressure mounts on Lankan businesses

Published

3 hours ago

2026/06/7

Thilina Walpola

Lankan businesses are facing increasing pressure to strengthen climate governance, compliance, and risk management frameworks as climate-related disclosure requirements, investor expectations, and regulatory standards continue to evolve.

Against this backdrop, Genesis – the Dilmah Centre for a Sustainable Future will host a specialised post-summit technical workshop titled “Climate Action: A Strategic Executive Workshop on Climate Resilience and Business Continuity” on June 12, in Colombo.

The programme is designed as a continuation of discussions initiated at the Sri Lanka Climate Summit 2026 and will bring together sustainability managers, compliance officers, ESG professionals, risk specialists, and corporate decision-makers. It aims to translate climate commitments into practical business strategies.

The workshop will focus on implementation rather than advocacy, examining emerging disclosure frameworks, financing mechanisms, and regulatory pathways shaping corporate climate action in Sri Lanka.

Keynote speaker Dr. Lalanath de Silva, an internationally recognised environmental lawyer and governance expert, will address the evolving legal and compliance landscape influencing climate-related business decisions.

Technical sessions will cover IFRS S2 climate-related disclosures, climate risk governance, green finance opportunities, internal carbon pricing, and access to climate financing. Speakers will include climate risk specialist Rohan Cooray, Shiranee Yasaratne of Biodiversity Sri Lanka, and Suganthi Samarasinghe of UNDP Sri Lanka.

Organisers said climate readiness is increasingly becoming a business necessity rather than a sustainability option, with growing scrutiny from global markets and regulators.

Participation is free of charge, but prior registration is required due to limited seating for professionals in sustainability, governance, compliance, and risk management roles.

Business

SPAR Sri Lanka Opens New Outlet in Kurunegala

Published

4 hours ago

2026/06/7

Thilina Walpola

SPAR Sri Lanka has expanded its retail network with the opening of a new outlet in Kurunegala, marking another milestone in the supermarket chain’s growth across the country.

The new store, strategically located to serve the growing population of the North Western Province, offers a wide range of products, including fresh fruits and vegetables, premium meat products, bakery items, household essentials and both local and international brands.

The outlet also features several specialty sections, including a Coconut Corner, Wellness Corner and a dedicated area catering to pet care products.

Speaking at the opening, SPAR Sri Lanka Chief Executive Officer Kumar de Silva said the new outlet reflects the company’s commitment to delivering a “glocal” shopping experience by combining international retail standards with local customer preferences.

“Our Kurunegala outlet reflects our dedication to providing customers with the best range, superior quality and exceptional service under one roof,” he said.

The store also offers SPAR’s signature fresh food concepts, including in-store bakery products, ready-to-eat meals and freshly prepared juices aimed at meeting the needs of busy consumers.

The company said customers will benefit from a range of promotional offers, loyalty rewards, weekend deals and seasonal discounts.

SPAR Sri Lanka said the expansion would also contribute to local economic development through employment generation and support for local suppliers, further strengthening the country’s retail sector.

Pic and Text by SK Samaranayake

Business

Royal end title drought with dramatic shootout triumph

Published

4 hours ago

2026/06/7

Thilina Walpola

The victorious Royal College Under-20 hockey team pose with the championship trophy after emerging unbeaten champions of the All Island Under-20 Hockey Tournament at the Rajarata University Grounds in Mihintale. Front row (left to right): Ronal Edirimanne, Sulaiman Shihar, Gunitha Dissanayake, Dilsara Prabath, Kumuthulu Goonathilake, Savain Karunasiri, Vidu Wijesinghe, Seth Pathirathne, Pasindu Epa and Hirun Lindula. Back row (left to right): Stefan Anthonypillai, Geesath Bathisa, Haazim Dhailamy, Teacher-in-Charge Uditha Kumara, Coach Damith Panditharatne, Captain Aathif Faleel, Kithmina Rathnayake, Vice Captain Lithum Karunasiri, Nehan Wijayanayake, Yusuf Shihar, Ruvi Perera and Rumal Jayasinghe.

Royal College, Colombo, emerged unbeaten champions of the All-Island Under-20 Hockey Tournament after defeating defending champions St. Thomas’ College, Matale, in a nail-biting sudden-death penalty shootout at the Rajarata University Grounds in Mihintale last week.

The final ended in a 1-1 draw after Royal equalised five minutes from time to cancel out the Matale side’s earlier lead.

With the penalty shootout also ending in a 4-4 deadlock, the match proceeded to sudden death. The Reid Avenue outfit eventually prevailed in the second round of sudden-death penalties to clinch the title.

A brilliant save by goalkeeper Stefan Anthonipillai, who stretched to his right to deny a crucial attempt, and the decisive conversion by Rumal Jayasinghe helped Royal secure the Under-20 championship for the first time since the tournament’s inception in 2014.

Royal’s centre-forward Savain Karunasiri was one of the team’s standout performers throughout the tournament, scoring crucial goals, including strikes in both the semi-final and the final. Anthonipillai was equally impressive, guarding the goal superbly throughout the seven-match campaign.

Royal finished runners-up when the tournament was held in Matale last year.

The Colombo school produced a series of consistent performances despite having to play on an uneven grass surface that was not ideally suited to the fast-paced modern game.

Royal began their campaign with a 2-0 victory over Christ Church College, Matale, before defeating arch-rivals St. Thomas’ College, Mount Lavinia, 1-0. They then beat Kingswood College, Kandy, 2-0 and Maris Stella College, Negombo, 2-1 to top their group.

In the quarter-final, coach Damith Panditharatne’s side overcame fancied Dharmadutha College, Badulla, by 2-0.

Royal then edged out St. Joseph Vaz College, Wennappuwa, 1-0 in the semi-final, adopting a disciplined defensive approach against the aggressively attacking Puttalam outfit.

In the other semi-final, St. Thomas’ College, Matale defeated Trinity College, Kandy, 3-1. St. Joseph Vaz later beat Trinity 1-0 in the third-place playoff.

Panditharatne’s five-year development programme, with a strong emphasis on fitness, stamina and technical skills, played a key role in Royal’s success. The title marked Royal’s first national Under-20 tournament triumph since winning the National Schools Games in 2017.

A former national player, Air Force striker and Sri Lanka Police coach, Panditharatne has focused on addressing the weaknesses of individual players while building a cohesive unit. The former Christ Church College, Matale player has been coaching Royal since 2022 with the support of the Royal College Hockey Club (RCHC), comprising former Royal hockey players.

For his outstanding performances, Anthonipillai was adjudged the Best Goalkeeper of the Tournament. Royal College was also named the Most Disciplined Team of the Tournament.