Fresh relief for businesses struggling with loan repayments

Businesses showing support to fight against parate execution in the first ‘Anti-Parate Activist’ meeting held in December 2023 -Pic by Kithrisi de Mel

• Cabinet nod given to suspend the procedure to acquire properties of whose loans are not paid off by the banks up to 15 December
• Intense lobbying by ‘Anti-Parate Activists’ has finally pushed the authorities to make a decision that will weaken the strength of banks to support sectors

Businesses struggling to repay loans can now let out a sigh of relief as a Cabinet decision has been announced that prevents banks from opting for aggressive recovery measures.

Cabinet of Ministers on Monday approved the proposal to suspend the procedure to acquire properties whose loans are not paid off by the banks up to 15 December 2024. The nod was also given to amend section 4 of the Recovery of Loans by Banks (Special Provisions) Act No. 4 of 1990 to impose legal provisions required for the suspension.

This means the intense lobbying by a group of businesses who have branded themselves as the ‘Anti-Parate Activists’ has finally pushed the authorities to make a decision, which according to financial sector stakeholders, will weaken the strength of banks to perform their role in supporting the economic 
sectors that will revive the country.

The decision also means that Sri Lanka’s financial sector regulator and the banking sector stressing the need to strengthen the parate execution (sale of mortgaged properties without going through legal and formal court proceedings) fell on deaf ears.

According to the Department of Government Information statement, the proposal was approved since “various parties have pointed out further issues existing in relation to properly paying off the loans obtained from banks for the businesses by small and medium scale businessmen.

It added that under such circumstances, adhering to existing legal provisions, banks are taking measures to acquire properties of a considerable number of businessmen due to non-payment of loans.
“Therefore, it is apparent that a sufficient grace period to pay off relevant debts without being a burden to the banking system should be rendered by redressing the crisis that could  erupt in the business arena,” the statement said.  

Just this month, the Central Bank called for legal reforms to further strengthen Sri Lanka’s Parate execution and other credit recovery laws to shorten the credit recovery cycle, so that it is on par with global practices. Central Bank Governor Dr. Nandalal Weerasinghe reiterated in recent weeks that it is essential to understand the difference between the SMEs and anti-parate activists who are largely made up of wilful defaulters.

Meanwhile, addressing a panel discussion by CAL this week, held shortly after State Minister of Finance Ranjith Siyambalapitiya revealed that a Cabinet paper on the suspension will be tabled, DFCC Bank CEO Thimal Perera warned any move to relax or suspend parate execution will take away the willingness of banks to lend.
“Banks will be a lot more cautious and a lot more conservative in lending. So that is not going to help the economy and the SME sector that need bank financing to grow and prosper,” he said, pointing out that the action was used to bring wilful defaulters to the table.

Standard Chartered CEO Bingumal Thewarathanthri noted that loans under parate are about 0.4 percent under the asset book.
 “So if you are trying to protect that group and punish the entire asset base, then immediately the pricing will go up as the RW models will change…we will need to relook at the entire risk models,” he said.