Sri Lankan banks will continue to seek court intervention in defaulting loans

Sri Lankan banks will continue to seek remedies through courts to recover defaulted loans despite the government’s decision to suspend the parate execution process.

“… 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 Sri Lanka Banks’ Association (SLBA) said in a statement.

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, it said.

The statement said that 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 farreaching negative impact on the banking sector, which functions as the heart and lifeblood of the economy.

It said banks were 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.

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 anyway, represent the wider business community of Sri Lanka,” the statement said.

The SLBA member banks aim is to assist is 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.

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.