Banks say parate execution is the last resort to protect depositors’ funds
By: Staff Writer
Colombo (LNW): The Sri Lanka Banks Association (SLBA) yesterday banks exercised their legally-enshrined right to parate execution as a last resort, and the overarching objective is the protection of depositors’ funds that have been lent to borrowers.
Responding to what it termed as lobbying by a group of defaulting borrowers espousing the removal or weakening of the protection of depositors’ funds, the SLBA said the parate execution remedy is aimed at recovering mortgaged assets from wilful defaulters and businesses that are no longer viable.
The SLBA, which represents all the licensed banks in the country, emphasised that banks have extended moratoriums on debt repayment for a long period exceeding 48 months in some cases, and that in instances of wilful default by borrowers, the banks owe a duty to their depositors’ whose funds are at risk, to recover the debts overdue and minimise the losses on loans granted.
The Association pointed out that the funds used to grant loans are placed with the banks by their depositors and that depositors are paid interest out of the interest charged from loans granted to borrowers.
“Banks are responsible to manage this intermediary role in a very careful manner to avoid deterioration of depositor confidence which can lead to many negative economic consequences,” the SLBA statement said.
“When borrowers face difficulties in repayment, the lending banks review the causes for the inability to repay interest and/or capital, and assess how the situation needs to be remedied to restore the borrower to being able to repay loans and carry on business/economic activity,” the SLBA said.
“In such instances it is common for the banks to exercise empathy as a “partner” and assist the borrowers to come out of their challenging financial situation, and it is common for the banks to consider extension of loans, provide moratoriums, consider interest concessions and restructure the loans to suit the future cash flows of the employment or the business.
Banks take this course as the preferred alternative to liquidating the assets of the borrower under loan security arrangements.
It also stated, “This is because it is beneficial for the customer as well as the bank to revive a business to good financial health than to shut it down and take whatever residual value is left, which in majority of cases is less than the value of the amounts due to the bank and kills the economic activity that was being financed.
The banks therefore take the option of a win-win for all and support the borrowers when they face difficulties.”
“When assessing the condition of the overdue loans and their ability to be revived, banks have to accept that certain cases are beyond revival and/or that the default is wilful and in fraud of the lender.
In these limited circumstances banks as responsible financial intermediaries must necessarily invoke the remedies available under the law and this includes ‘parate execution’ which is a measure to protect the depositors’ funds from wilful defaulters.”
The Sri Lanka Banks Association (SLBA) yesterday banks exercise their legally-enshrined right to parate execution as a last resort, and the overarching objective is the protection of depositors’ funds that have been lent to borrowers.
Responding to what it termed as lobbying by a group of defaulting borrowers espousing the removal or weakening of the protection of depositors’ funds, the SLBA said the parate execution remedy is aimed at recovering mortgaged assets from wilful defaulters and businesses that are no longer viable.
The SLBA, which represents all the licensed banks in the country, emphasised that banks have extended moratoriums on debt repayment for a long period exceeding 48 months in some cases, and that in instances of wilful default by borrowers, the banks owe a duty to their depositors’ whose funds are at risk, to recover the debts overdue and minimise the losses on loans granted.
The Association pointed out that the funds used to grant loans are placed with the banks by their depositors and that depositors are paid interest out of the interest charged from loans granted to borrowers.
“Banks are responsible to manage this intermediary role in a very careful manner to avoid deterioration of depositor confidence which can lead to many negative economic consequences,” the SLBA statement said.
“When borrowers face difficulties in repayment, the lending banks review the causes for the inability to repay interest and/or capital, and assess how the situation needs to be remedied to restore the borrower to being able to repay loans and carry on business/economic activity,” the SLBA said.
“In such instances it is common for the banks to exercise empathy as a “partner” and assist the borrowers to come out of their challenging financial situation, and it is common for the banks to consider extension of loans, provide moratoriums, consider interest concessions and restructure the loans to suit the future cash flows of the employment or the business.
Banks take this course as the preferred alternative to liquidating the assets of the borrower under loan security arrangements.
It also stated, “This is because it is beneficial for the customer as well as the bank to revive a business to good financial health than to shut it down and take whatever residual value is left, which in majority of cases is less than the value of the amounts due to the bank and kills the economic activity that was being financed.
The banks therefore take the option of a win-win for all and support the borrowers when they face difficulties.”
“When assessing the condition of the overdue loans and their ability to be revived, banks have to accept that certain cases are beyond revival and/or that the default is wilful and in fraud of the lender.
In these limited circumstances banks as responsible financial intermediaries must necessarily invoke the remedies available under the law and this includes ‘parate execution’ which is a measure to protect the depositors’ funds from wilful defaulters.”
