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Monday June 3rd, 2024

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

ECONOMYNEXT – 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’s banks have said.

“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,” Sr Lanka Bank’s Association said in a statement.

“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.”

The full statement is reproduced below:

Banks alarmed by suspension of parate process at behest of a few individual defaulters – SLBA

Colombo, Monday 11th March 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 will 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

 Bank’s 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 specially MSMEs during recent crises affecting the economy including the April 2019 terror attacks, COVID Pandemic and on-going 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 anyway, 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 economic revival of the country.”

“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.”

“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 courts 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.”

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Water levels rising in Sri Lanka Kalu, Nilwala river basins: Irrigation Department

Sri Lanka Navy assisting in rescue operations (Pic courtesy SL Navy)

ECONOMYNEXT – Sri Lanka’s Irrigation Department has issued warnings that water levels in the Kalu and Nilwala river basins are rising and major flooding is possible due to the continuous rain. People living in close proximity are advised to take precautions.

“There is a high possibility of slowly increasing prevailing flood lowline areas of Kiriella, Millaniya, Ingiriya, Horana, Dodangoda, Bulathsinhala, Palinda Nuwara and Madurawala D/S divisions of Ratnapura and Kalutara Districts, up to next 48 hours,” it said issuing a warning.

“In addition, flood situation prevailing at upstream lowline areas of Ratnapura district will further be prevailing with a slight decrease.

“The residents and vehicle drivers running through those area are requested to pay high attention in this regard.

“Disaster Management Authorities are requested to take adequate precautions in this regard.”

The island is in the midst of south western monsoon.

DMC reported that 11,864 people belonging to 3,727 families have been affected due to the weather in Rathnapura, Kegalle, Kilinochchi, Jaffna, Mullaitivu, Kalutara, Gampaha, Colombo, Galle, Matara, Hambantota, Puttalam, Kurunegala, Kandy, Nuwara Eliya, Anuradhapura, Polonnaruwa, Badulla, Moneragala, and Trincomalee districts.

Meanwhile, the Meteorology Department stated that showers are expected on most parts of the island today.(Colombo/June3/2024)

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UNP gen secy defends call for postponing Sri Lanka poll, claims opposition silent

The UNP party headquarters in Pitakotte/EconomyNext

ECONOMYNEXT — United National Party (UNP) General Secretary Palitha Range Bandara has defended his call for postponing Sri Lanka’s presidential election by two years, claiming that his proposal was not undemocratic nor unconstitutional.

Speaking to reporters at the UNP headquarters Monday June 03 morning, Bandara also claimed that neither opposition leader Sajith Premadasa nor National People’s Power (NPP) leader Anura Kumara Dissanayake have spoken against his proposal.

“I have made no statement that’s undemocratic. My statement was in line with provisions of the constitution,” the former UNP parliamentarian said.

He quoted Section 86 of Chapter XIII of the constitution which says: “The President may, subject to the provisions of Article 85, submit to the People by Referendum any matter which in the opinion of the President is of national importance.”

Sections 87.1, 87.2 also elaborates on the matter and describes the parliament’s role, said Bandara.

“I spoke of a referendum and parliament’s duty. Neither of this is antidemocratic or unconstitutional. As per the constitution, priority should be given to ensuring people’s right to life,” he said.

“Some parties may be against what I proposed. They may criticse me. But what I ask them is to come to one position as political parties and make a statement on whether they’re ready to continue the ongoing economic programme,” he added.

Bandara claimed that, though thee has been much criticism of his proposal for a postponement of the presidential election, President Wickremesinghe’s rivals Premadasa and Dissanayake have yet to remark on the matter.

“I suggested that [Premadasa] make this proposal in parliament and for [Dissanayake] to second it. But I don’t see that either Premadasa nor Dissanayake is opposed to it. To date, I have not seen nor heard either of them utter a word against this. I believe they have no objection to my proposal which was made for the betterment of the country,” he said. (Colombo/Jun03/2024)

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300 of 100,000 trees in Colombo considered high risk: state minister

ECONOMYNEXT – Trees in Sri Lanka’s capital Colombo are being monitored by the municipal council, Army and Civil Defense Force as the severe weather conditions continue, State Minister for Defense Premitha Bandara Tennakoon said.

“Within the Colombo Municipal Council city limits, there are 100,000 trees. Of these, around 300 are considered high risk,” Tennakoon told reporters at a media conference to raise awareness about the current disaster management situation.

Not all trees required to be cut down he said. “We can trim some of the branches and retain them.”

The problem was that buildings in the vicinity of the tree had cut branches on one side, causing it to become unbalanced, the minister said.

New laws would be brought in so provincial/municipal institutions could strengthen enforcement of building codes.

“We don’t have a single institution that can issue a warning about a tree. Not one to tell us what trees can or cannot be planted near a road.

“Trees should be suitable for the area. Some trees have roots that spread and damage roads, buildings. When the roots can’t go deep, they tend to topple over.

“Now Environment Day is coming up, and anyone can go plant a tree by the road. We have to take a decision about this. We have to enforce laws strongly in future.” (Colombo/June3/2024)

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