Banking system plays a critical role in the financial industry. Banks act as the financial intermediary by facilitating transfer of funds between lenders and borrowers. Therefore, financial soundness of the banking system is heavily important to the economy. Lending portfolio is the main revenue stream for any financial institution and act as a key determinant of bank’s financial performance. Therefore, banks constantly focus on improving their lending portfolio performance. Interest rates are one of the key aspects of bank’s day to day lending operations. Therefore, interest rates volatility act as a deciding factor for lending portfolio performance. In April 2022, Central Bank of Sri Lanka increased the policy rates (SDFR & SLFR) by a significant margin, as a measure to recover from the economic crisis country was going through. As a result of that, interest rates of all commercial banks were also increased by a significant margin. Interest rate change of that caliber will have a considerable impact on the operations of all major banks in the country. Author has conducted a study to analyze the Impact of increasing loan interest rates on lending portfolio performance of private commercial banks in Sri Lanka. Further a comprehensive literature review has been conducted relevant to the study. Data has been collected through both secondary and Primary research methods. A comprehensive analysis has been carried out to understand the relationship between independent and dependent variables.
