Over third of Sri Lanka’s listed firms fail to cover interest bills: Central Bank

ECONOMYNEXT — More than a third of Sri Lanka’s listed non-financial companies did not earn enough operating profit to cover their interest expenses in the first half of 2026, even as total revenues rose sharply, the central bank said.

The share of companies with an interest coverage ratio (ICR) below one rose to 37.7 percent in the first half of 2026 from 33.8 percent a year earlier, according to the Central Bank of Sri Lanka’s Financial Stability Review 2026, which surveyed 204 companies listed on the Colombo Stock Exchange.

An interest coverage ratio below one indicates that a company’s earnings before interest and tax are insufficient to meet its debt interest payments.

“The decline in aggregate profits was largely attributable to higher costs of sales and operating expenses,” the central bank said in the report. “Against this backdrop, creditworthiness showed some signs of moderation, reflecting a slowdown in debt servicing capacity.”

The debt squeeze took place despite strong top-line sales. Overall revenue jumped 22.0 percent year-on-year in the first half of 2026, accelerating from 7.6 percent growth a year earlier. The automobile sector led the surge with revenue expansion of 138.9 percent following the reopening of vehicle imports, while power and energy companies were lifted by higher energy prices.

However, rising business costs outpaced top-line earnings. Higher sales added 199.0 billion rupees to overall corporate revenue, but this gain was largely wiped out by a 152.3 billion rupee increase in cost of sales. Administrative, distribution, and other operational expenses drained another 52.3 billion rupees.

As a result, aggregate net profit dropped 6.1 percent to 136.8 billion rupees from 145.7 billion rupees in the previous year. Operating earnings (EBITDA) also slipped by 0.4 percent.

“Profit contractions at several large corporates outweighed gains at many others,” the report said. “The aggregate ICR fell to 3.7 times from 4.2 times, although it remained comfortably above one, indicating listed companies on average could still meet interest obligations.”

Performance varied widely across sectors. Trading and distribution was the sole sector with an aggregate ratio below one, falling to 0.7 times, while also recording negative net profit against its debt.

Construction and engineering firms carried the highest debt-to-equity levels combined with depressed earnings. In contrast, food, beverage and tobacco companies alongside real estate businesses emerged as the strongest performers.

Corporate borrowing costs as a share of average debt climbed slightly during the period, driven by higher market interest rates following the central bank’s decision to raise its policy interest rate in May 2026. (Colombo/Oct12/2026)