Sri Lanka parate suspension increases risk premium, endangers deposits, banks say

Sri Lanka
By Editor_1

COLOMBO – A decision by the cabinet to suspend parate execution, making recovery of bad loans more time-consuming will increase the risk premium charged from borrowers and also undermine the safety of deposits, Sri Lanka Banks’ Association (SLBA) said on Monday (11).

“Banks deploy depositors’ funds when lending to the public, and the inability to recover money due from defaulters or extended delays in recovery, will potentially place public deposits at risk,” the Association said in a statement, noting that the member banks aimed to assist in maintaining stability of the banking system within the regulatory policy framework that supports national economy and protects public depositors.

“In this context, the member banks object in the strongest terms, to the reported interference to amend the existing laws relating to debt recovery and urge policymakers to make decisions based on data and the national economic interest of the entire country, instead of being swayed by the lobbying of a small group of loan defaulters.”

The statement in full:

COLOMBO – March 11, 2024 – The unilateral decision by the government to suspend debt recovery via parate laws is a knee-jerk response to intense lobbying by a few individual defaulters that do not represent the wider business community, and will have a far-reaching negative impact on the banking sector, which functions as the heart and lifeblood of the economy, the Sri Lanka Banks Association (SLBA) said today.

The Association, which represents all banks licensed by the Central Bank of Sri Lanka (CBSL) including state banks, public listed companies and branch offices of international banks, said it is alarmed over state intervention to curb debt recovery laws, pointing out that there had been no consultation with the banks, and cautioning that the cost of borrowing will increase for all borrowers as a result of the government decision.

It also emphasized that the suspension of parate execution would not preserve a mortgaged asset of a defaulter, as banks will continue to exercise mortgage action through the courts of law.

“The ‘parate’ execution provision is only one option available to banks in the debt recovery process, that mitigates the impact of the delays in the process,” the SLBA pointed out.

Until existing laws are amended by Parliament, banks will, where appropriate, use the parate remedy as a last resort, prior to going to court.

The process requires each individual case to be put to the banks’ boards of directors and the publication of notices in the media.

It is not a process that can be implemented at the whim of any bank officer.

Some of the key points made by the SLBA in its statement are:

  • A handful of defaulters are lobbying to amend existing debt recovery laws
  • Access to funding for good borrowers will be impacted as banks turn cautious
  • The cost of borrowing will increase for all borrowers as banks add risk premiums
  • This will have a negative impact on the Banking sector’s efforts to support national economic revival
  • Banks deploy depositors’ funds when lending to the public, and the inability to recover money due from defaulters or extended delays in recovery will potentially place public deposits at risk
  • The suspension of parate action will interrupt and stall ongoing initiatives of international agencies such as the IMF, World Bank Group, and the ADB as well as the Central Bank which are working with the banks to establish a resolution process that includes revival of distressed debt of banks by helping borrowers towards rehabilitation and preservation of residual value of such business assets
  • The banks have already absorbed the cost of extending relief to borrowers especially MSMEs during recent crises affecting the economy including the April 2019 terror attacks, the COVID Pandemic and ongoing economic crisis where the parate process was suspended for as long as possible

The SLBA said its members have observed with alarm, the statements attributed to a decision made by the Cabinet of Ministers, that the debt recovery remedies available to banks, under the current laws may be amended.

“This decision and the wide publicity appear to be in response to strong lobbying by a small group of individuals who have defaulted on their debt obligations for a prolonged period. It is the view of the SLBA that this lobby group does not in any way, represent the wider business community of Sri Lanka,” the statement said.

“Banks use the ‘parate’ laws as an option of last resort in order to expedite debt recovery from loan defaulters with a view to protecting the interests of the banking system and the depositors who provide funds for such loans.

“The banks believe that the reported unilateral intervention by the Cabinet of Ministers is unnecessary and will weaken the strength of banks in performing their role in supporting the economic revival of the country.

“The SLBA member banks aim is to assist is maintaining the stability of the banking system within the regulatory policy framework that supports the national economy and protects public depositors. In this context, the member banks object in the strongest terms, to the reported interference to amend the existing laws relating to debt recovery and urge policymakers to make decisions based on data and the national economic interest of the entire country, instead of being swayed by the lobbying of a small group of loan defaulters.

“Public deposits continue to be the main source of funding of banks for lending and granting of credit. These loans include the loan amounts in the names of non-paying borrowers. When the ‘parate’ remedy and/or court procedures are resorted to by the banks, these borrowers strenuously obstruct and delay resolution. This is detrimental to the legitimate users of the banking system.

“Depositors must not be made to feel that their deposits are unsafe in banks. The rising proportion of non-performing loans is a warning that non-paying borrowing businesses must be expeditiously revived if they are commercially viable. If they are not viable, they must be expeditiously liquidated in an orderly manner with no continuing diminution of asset values.

“The existing Parate laws provide a structured and legal means for banks to recover long outstanding debts of borrowers. Banks proceed with Parate Action as a last resort. This is when they have been unable to persuade borrowers to cooperate in reaching workable debt repayment rationalization plans (such plans sometimes necessitate stronger expense discipline and disposal of non-core, non-income-producing assets). Continuation of an irretrievable business is not a good policy in the national interest and most importantly cannot be funded long-term by the bank depositors.

“The public trust reposed in the banking system depends on the banks being able to continue meeting their obligations to depositors to repay as agreed, the interest earned on the deposits and also to repay the principal deposit on maturity.”

-economynext.com

Editor_1
You might also like More from author

Comments are closed, but trackbacks and pingbacks are open.

otc high blood pressure treatment blood pressure guidelines medications blood pressure pills that is safe for the liver high blood pressure medication levothyroxine blood pressure medication that reduces blood pressure is there any difference in blood pressure pills high blood pressure child medication blood pressure medication recommendation nose blue blood pressure medication blood pressure is 150 68 should i take my medication blood pressure medication while nursing taking a bunch of high blood pressure pills aerobic exercise and blood pressure medication good blood pressure medication acupuncture treatment for low blood pressure best over the counter pills for high blood pressure blood pressure pill amlodipine besylate high blood pressure signs and treatment moderna vaccine blood pressure medication which blood pressure drugs do not cause tinnitus blood pressure medication fights cancer blood pressure medication skin rash side effects of high blood pressure medication impotence medication to avoid on blood pressure medications high blood pressure rx medication peripheral neuropathy caused by blood pressure medication high blood pressure in pregnancy treatment nice runny nose do to blood pressure medication how to get off of blood pressure pills hiv medication and high blood pressure niacin treatment for high blood pressure two drugs for blood pressure that caused cancer high blood pressure causing medications high blood pressure medication names canada blood pressure medication side effects alcohol i take 3 blood pressure medication blood pressure pills that help with anxiety what iv drug raises blood pressure list of doctors who formulated blood pressure medications how to remember blood pressure medications sleeping pills blood pressure how fast does blood pressure medication take effect sweet n low high blood pressure medication home treatment for blood pressure high blood pressure medication matrocet high blood pressure medication doses blood pressure drug bystolic iberstaron blood pressure medication blood pressure medications st alphabetical celexa and high blood pressure medication does blood pressure pills irritation skin can i take combivent with high blood pressure medication blood pressure medications beta blockers list what to do if blood pressure medication does not work drugs to lower your blood pressure red beet pills for blood pressure taurine and blood pressure medications how ling for garlic pills to lower blood pressure blood pressure medication list and side effects can i take aspirin with high blood pressure medication blood pressure medication teaching about hot tubs water pills high blood pressure over counter what is an arb medication for blood pressure resveratrol high blood pressure medication high blood pressure medication and weight loss gum disease and blood pressure medication benzenesulfonic acid in blood pressure medication taking two blood pressure pills by mistake allergy pills for high blood pressure blood pressure prescription drugs safety blood pressure medication in pregnancy trazodone and blood pressure medication which blood pressure medication is linked to skin cancer list of blood pressure medications with the least side effects could blood pressure medication make blood thicker disadvantages of high blood pressure medication blood pressure medications ludipril typical drugs for high blood pressure otc water pills for high blood pressure blood pressure medications that do not doncause bowel blockage high blood pressure after corrosion treatment how soon does high blood pressure medication work blood pressure medication teaching amertyrine high blood pressure medication increased blood pressure and heart rate after drug overdose over the counter drugs high blood pressure blood pressure medication 25 is blood pressure medication a nitrate most effective blood pressure pills blood pressure medical does red yeast rice interfere with high blood pressure medication can apple cider vinegar pills lower blood pressure does blood pressure medication give you headaches high blood pressure medication and driving should you take blood pressure pills with food inn blood pressure drugs can you eat bananas if taking blood pressure medication popular high blood pressure medication blood pressure medication los blood pressure medication second drug low blood pressure and hypertension medication do water pills lower blood pressure high blood pressure pill aqunadine high blood pressure cholesterol medication how does medication lower blood pressure acetaminophen blood pressure medication blood pressure medication 30 mg that works around the heart what does grapefruit do to blood pressure medication can red yeast rice be taken with blood pressure medication pharmaceutical treatment for high blood pressure are blood pressure pills statins blood pressure pills that start with r blood pressure medication and male impotence taking baby aspirin with other high blood pressure medications what is the medical name for a blood pressure cuff leg cramps and blood pressure medication blood pressure pill name starts with p natural high blood pressure treatments blood pressure medication names losartan higher blood pressure with radiation treatment medical marijauna high blood pressure how to avoid medication for high blood pressure what time is best to take blood pressure medication medication for palpitations and high blood pressure latest news on blood pressure treatment what if i take two blood pressure pills does xanax interfere with blood pressure medication amlipan blood pressure medication vitamin e and blood pressure medication tell me the side effects of high blood pressure medication herbs pills to lower blood pressure blood pressure medication urge to urinate what medication will safely replace lisop as blood pressure medicine active ingredient in high blood pressure medication blood pressure medications cause adrenal tumors is biktarvy ok to take with high blood pressure medication alembic blood pressure medication sandoz blood pressure medication exercise high blood pressure medication grapefruit pills blood pressure treatment for high blood pressure at home blood pressure medication for patients with osa cycle on off blood pressure medication blood pressure drugs that do not cause heat sensitivity blood pressure medications that do not cause coughing what blood pressure medications do not cause rosacea pfizer blood pressure medication side effects do garlic pills really help lower blood pressure should i take medication for anxiety induced blood pressure treatment for uncontrolled blood pressure decongestant medication high blood pressure can stiff days be used with high blood pressure medication how long does it take medication to lower blood pressure what if i miss a blood pressure pill tribenzor high blood pressure pills law lawsuit 2023 treatment of sudden drop in blood pressure zoloft and blood pressure medication orange high blood pressure pill cancer blood pressure pill why cant people with high blood pressure take keto pills how long for blood pressure to go down mini pill should i get second opinion before taking blood pressure medication blood pressure erectile dysfunction medication high blood pressure medication m lot ben medical device lowers blood pressure puppy ate blood pressure pill are there medications for low blood pressure dod blood pressure medication is losartan a blood pressure pill combination drugs for blood pressure marijuana and blood pressure medication interaction blood pressure medication interactions with grapefruit can you eat bananas while taking high blood pressure medication steps before going on high blood pressure medication blood pressure medication when to cut down foods to avoid on blood pressure medication blood pressure medications depression blood pressure medication non beta blocker tattoos and high blood pressure medication what is the medications used to lower blood pressure quickly high blood pressure medication leg swelling blood pressure medication men in your 40s blood pressure medication wieight loss blood pressure medication hy can blood pressure medication lower blood sugar does blood pressure medication make you pee natural treatment high blood pressure during pregnancy can you take l arginine with high blood pressure medication what class of blood pressure medication can can blood pressure pills reduce appetite faa approved medication for high blood pressure high blood pressure medication during pregnancy best blood pressure medication for type 2 diabetes blood pressure and pain medication pain medication that does not affect blood pressure best high blood pressure drugs on the market if you take incorrect medications to lower blood pressure low blood pressure treatments does your body have to adjust to blood pressure medication why water pill for high blood pressure drugs for treatment of very high blood pressure during pregnancy can i drink grapefruit juice with high blood pressure medication can blood pressure pills make you feel cold high blood pressure medication that helps with weight loss amlodipine blood pressure drug blood pressure medication for infants varicose veins blood pressure medication life extension high blood pressure medication does tylenol interfere with blood pressure medication can i take diamox with other high blood pressure medications prestige medical blood pressure cuff calibration drugs used for high blood pressure chamomile tea and high blood pressure medication narcotics stored alongside blood pressure medications in does nutrigrove blood pressure pills work extremely low blood pressure treatment blood pressure medication for iga nephropathy blood pressure medication low side effects can i increase my blood pressure medication what is the best blood pressure medication to take drugs that cause increased blood pressure does biotin interfere with high blood pressure medication cani od on high blood pressure pills blood pressure medication that also helps with jerking blood pressure medication categories first line treatment of high blood pressure medication for low blood pressure in usa armour thyroid drug interactions blood pressure meds hepatitis c treatment high blood pressure high blood pressure arb drugs low blood pressure treatment with essential oils high blood pressure medication list for pregnancy blood pressure medication and snake venom blood pressure medication low dose liquid blood pressure medications ivf drugs and high blood pressure left my blood pressure medication does it matter when you take blood pressure medication can you take blood pressure pills twice a day privilin blood pressure medication how big are blood pressure pills once you start blood pressure medication can you stop diuretic in blood pressure medication what medication reduce blood pressure new blood pressure treatment prescribed home medications for high blood pressure blood pressure medication side effects forums taking blood pressure pills dizzy when bend over a lot blood pressure medication and nyquil cinnamon pills and high blood pressure temporary high blood pressure treatment single agent blood pressure medication blood pressure medication made in china fda approved medications to reduce blood pressure immediate treatment for high blood pressure at home best time to take blood pressure pills muscle loss on high blood pressure medication blood pressure medication when needed treat high blood pressure without medication blood pressure medication side effects for men cbd pills for high blood pressure blood pressure regulation without medication blood pressure medication and pre workout high blood pressure alzheimer disease and antihypertensive treatment miss blood pressure medication blood pressure pills suicide peaceful emergency drugs for low blood pressure common blood pressure medications in canada systolic blood pressure define medical viril and high blood pressure pills can statin drugs help lower blood pressure do you have to wean off blood pressure medication new drugs for blood pressure when is high blood pressure medication necessary drugs for hi blood pressure cold medications and blood pressure taking 2 blood pressure pills mistake why doctors stopped prescribing blood pressure medication common high blood pressure medication canada what side effects does blood pressure medication have ulcer medication high blood pressure can high blood pressure medication elevate alkaline phosphatase blood pressure medication warning getting blood pressure medication jamaica alkaline water and blood pressure medication blood pressure going up and down with medication drugs reduce systolic blood pressure treatment for rapid high blood pressure low blood pressure alternative treatment do all high blood pressure medications cause weight gain medication for increasing blood pressure blood pressure medication for african american males vitamins for high blood pressure treatment aleve with blood pressure medication how to lower blood pressure without pills blood pressure triple pill who blood pressure guidelines for hygiene treatment what drug reduces blood pressure blood pressure medications enalapril met blood pressure medication