Sri Lanka, Oct. 13 -- Sri Lanka's financial recovery is carrying fresh lending risks alongside a long-standing vulnerability: the financial institutions remain heavily exposed to the government, while the rapid growth in vehicle and gold-backed loans is adding to the household indebtedness, the Central Bank warned.

Its Financial Stability Review 2026, released yesterday, found that stronger economic activity, improved fiscal performance and adequate capital and liquidity had kept the financial system stable during the first half. However, the composition and pace of lending required continued scrutiny.

"Although the financial sector exposure to the public sector reduced, it remained significant, underscoring the considerable sovereign-...