Banks Not Planning Widespread Parate Proceedings, Assures Sri Lanka Banks’ Association

The Sri Lanka Banks’ Association (SLBA), the collective voice of all licensed commercial banks in the country, today moved to quell alarmist claims regarding widespread parate proceedings now that the grace period for loan repayments has concluded. The SLBA firmly stated that banks have no intention of launching a flood of parate actions, emphasizing that such measures remain a last resort.

Following the government’s suspension of parate laws until March 31, 2025, the banking sector voluntarily extended this moratorium for an additional three months. This extension aimed to provide struggling borrowers with ample time to engage with banks and restructure their loans, leading to many obtaining further relief, with some grace periods extending to December 2025.

With the extended grace period now over, the SLBA acknowledged that a “small group of borrowers” has resumed agitation, attempting to create panic about a supposed imminent wave of parate actions and auctions of mortgaged assets. The Association categorically dismissed these claims as “exaggerated” and “dangerously counterproductive” at a time when most borrowers are collaborating constructively with banks for business revival.

“We wish to reassure existing and potential borrowers that there is no intention by banks to rush into parate action,” the SLBA affirmed. They clarified that only a “very small fraction” of borrowers default to an extent that makes them eligible for parate execution. Furthermore, the “overwhelming majority” of this fraction are still being assisted by their banks to reschedule loans and avoid asset sales.

To underscore this point, the SLBA highlighted data from 2019 to 2023, a period marked by significant debt servicing challenges in Sri Lanka. During these five years, less than 1% of non-performing loans ultimately resulted in parate action, demonstrating its rare application as a final measure when all other resolution attempts have failed.

The SLBA denounced attempts to portray parate laws as an “aggressive first response” by banks, labeling them as “misleading and unhelpful.” They reiterated that parate laws serve a crucial purpose: to protect depositors’ funds, which are lent in good faith to support individuals, SMEs, and larger enterprises. The Association stressed that banks prefer to retain their customers and recover loans through cooperation rather than enforcement.

The banking sector has consistently demonstrated patience and flexibility, offering support to thousands of businesses impacted by events such as the Easter Sunday attacks, the COVID-19 pandemic, and the recent economic crisis. Banks continue to maintain dedicated Business Revival Units to assist distressed borrowers in restructuring loans and re-establishing viable operations, even working with those outside the parameters of established relief programs.

“It is deeply regrettable that instead of engaging with these mechanisms, a small number of borrowers are seeking to incite fear and erode public confidence in the financial system,” the SLBA stated, warning that such actions risk undermining both the stability of the banking sector and the prospects of genuine borrowers committed to meeting their obligations.

The SLBA concluded by urging all borrowers facing difficulties to proactively approach their banks to explore transparent solutions. They emphasized that the strength and stability of the banking system, vital for depositors, investors, and the wider economy, rely on responsible behavior and constructive engagement, rather than misplaced panic.