Sri Lanka's central bank warned that worsening weather linked to El Nino could create fresh strains on households and businesses, hurting banks through rising loan defaults. (Reuters pic)COLOMBO: Sri Lanka's fragile recovery from its worst economic crisis in decades could be undermined by the country's worst-ever El Nino conditions, the central bank has warned.

The Central Bank of Sri Lanka also said last year's Cyclone Ditwah, which killed some 650 people and caused billions in damage, had weakened asset values and increased risks for lenders as the island emerges from its 2022 sovereign default.

"Climate-related risks, such as the El Nino phenomenon, and elevated volatility in financial markets created a challenging external environment, with potential implications for domestic macroeconomic and financial stability," the bank said in a report published late Monday.