ECONOMYNEXT – Sri Lanka will halt parate execution or the auctioning of assets of small and medium enterprise pledged to take bank loans that have now gone bad, State Minister for Finance Ranjith Siyambalapitiya said.
A cabinet paper suspending the foreclosure powers of banks for a define period will be presented to the cabinet next week, Siyambalapitiya was quoted as saying in parliament.
The time period was not mentioned.
Related Sri Lanka banks say parate execution needed to protect depositors
Banks have warned that halting parate execution will make lenders more cautious about lending to small and medium enterprises in the future as they have to protect depositors, and good borrowers will also pay a price if recovery is made more difficult.
Sri Lanka’s economy contracted in 2022 and 2023 after the central bank cut rates and injected over two trillion rupees (rupee reserves) into the banking system allowing banks to give loans without deposits, leading to loss of foreign reserves of the central bank followed by a collapse of the currency.
In the stabilization period that follows the rate cut driven currency crisis, bad loans tended to rise as the demand contracts and interest rates rise to levels far higher than if the central bank did not cut rates with inflationary liquidity tools and allowed rate to go up.
Sri Lanka bank bad loans touched 13 percent in the current currency crisis. (Colombo/Feb21/2024)