International ratings agency Fitch has maintained Sri Lanka's People's Bank at 'AA-(lka)' with a stable outlook, though the bank's prospects remain tied to the country's weak sovereign credit profile.
Fitch Ratings has affirmed the National Long-Term Rating of People's Bank at 'AA-(lka)', reflecting the institution's financial strength while acknowledging constraints from Sri Lanka's broader economic challenges. The stable outlook suggests the rating agency does not anticipate immediate changes to the bank's standing in the near term.
The bank's operating environment score remains constrained by the sovereign's weak credit profile, according to Fitch. As Sri Lanka's second-largest financial institution by assets and deposits, People's Bank maintains substantial exposure to government securities and public-sector lending, creating a direct link between the bank's health and the state's financial condition. This exposure stood at slightly under half of the bank's assets as of the first quarter of 2026.
Fitch flagged several pressures on profitability and capital resilience. Rising interest rates and elevated credit costs are expected to weigh on earnings in the near to medium term, with credit costs reaching 17% of pre-impairment operating profit in the first quarter of 2026, up from 14.8% in 2025. The bank's common equity Tier 1 ratio stood at 12% as of the first quarter, weaker than similarly-rated private counterparts, leaving it more exposed to capital-impairment risks.
On a positive note, the bank has significantly reduced direct lending to the state sector, with exposure declining to just above 15% of gross loans by end-2025 from nearly 45% before the crisis. However, this shift has created new concentration risks, as pawning loans—which carry collateral price sensitivity—have risen to nearly 19% of gross loans by early 2026. The impaired loan ratio improved to 14% by end-2025, though Fitch noted this reflected loan-book growth rather than underlying asset-quality improvement.
