International ratings agency Fitch has maintained its National Long-Term Rating for Sri Lanka's People's Bank at AA-(lka) with a stable outlook. The affirmation reflects the bank's solid financial position, though its assessment remains constrained by the nation's weak sovereign credit profile.
Fitch Ratings has affirmed Sri Lanka's People's Bank at its current National Long-Term Rating of AA-(lka), maintaining a stable outlook on the institution. The decision acknowledges the bank's underlying financial strength while recognizing challenges posed by the broader economic environment and the country's sovereign creditworthiness concerns.
As the nation's second-largest banking institution by assets and deposits, People's Bank remains heavily exposed to the domestic economy. According to Fitch, the bank holds substantial sovereign exposure estimated at slightly under half its assets as of the first quarter of 2026, with over three-quarters held in local currency government securities. This heavy reliance on state instruments ties the bank's performance closely to Sri Lanka's fiscal health, which currently carries a CCC+ rating from the agency.
The ratings agency anticipates headwinds to profitability in the coming months. Rising interest rates and elevated credit costs are expected to pressure earnings, with credit costs climbing to 17.0 percent of pre-impairment operating profit in the first quarter of 2026, compared to 14.8 percent in 2025. However, the bank has demonstrated progress in reducing its exposure to state lending, which declined to slightly above 15 percent of gross loans by end-2025 from nearly 45 percent before the economic crisis, a development Fitch views positively.
Fitch noted that the bank's capitalization remains vulnerable to sovereign and operating environment risks, with its common equity Tier 1 ratio standing at 12.0 percent as of first quarter 2026. The agency expects this measure to fluctuate between 12 and 13 percent in the near to medium term. Any future rating adjustments would likely depend on changes to the sovereign rating or material deterioration in the bank's key credit metrics relative to comparable institutions.
