Don’t panic! Banks tell SMEs as parate relief ends

• Assure borrowers that widespread asset seizures not imminent
• Say there are attempts by a small group of borrowers to create alarm and confusion
• Assert banks prefer to retain their customers and recover loans through cooperation rather than enforcement

Sri Lanka’s licensed commercial banks urged small and medium enterprises (SMEs) to not panic, as concerns mount over the use of parate laws from 1 July.

The Sri Lanka Banks’ Association (SLBA) assured borrowers that widespread asset seizures are not imminent and urged troubled businesses to work with lenders toward restructuring their loans.

In a strongly worded statement yesterday, SLBA said attempts were made by a small group of borrowers to create alarm and confusion, following the end of a relief period on parate executions.

“We wish to reassure existing and potential borrowers that there is no intention by banks to rush into parate action. The reality is that only a very small fraction of borrowers default to the extent that they become eligible for parate execution. Of that fraction, the overwhelming majority are still assisted by their banks to reschedule loans and avoid asset sales,” the SLBA said.

The government in April extended the grace period on parate executions until end-2025 for SMEs with borrowings of up to Rs. 25 million, provided they had engaged their banks on or before 31 March 2025. For loans between Rs. 25 million and Rs. 50 million, the deadline is 30 September, while those with borrowings above Rs. 50 million had until 30 June 2025. The extensions followed the expiry of an earlier moratorium on 31 March.

In addition to the official relief, banks had voluntarily extended the moratorium by a further three months to support borrowers, the SLBA said, with some receiving concessions through to December 2025.

With that window now closed, SLBA said a handful of borrowers has resumed agitation, seeking to whip up panic about a purported imminent flood of parate actions and auctions of mortgaged assets.

“The attempts by some parties to portray parate laws as an aggressive first response by banks are both misleading and unhelpful,” the statement noted, adding that in truth, parate laws exist to protect depositors’ funds, which are lent in good faith to support individuals, SMEs, and larger enterprises alike. 

“Banks prefer to retain their customers and recover loans through cooperation rather than enforcement.”

Citing data from 2019 to 2023 , a period the industry described as among the most challenging for debt servicing, SLBA said less than 1 percent of non-performing loans ended up being subject to parate execution, reinforcing that such action is a last resort.

The association also warned that sensationalism around parate laws could damage the very system that supports economic recovery.

“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 said. 

“Such actions risk undermining both the stability of the banking sector and the prospects of genuine borrowers who are committed to meeting their obligations.”

SLBA called on borrowers in difficulty to approach their banks without delay  and find solutions in a transparent and proactive manner.

“The strength and stability of the banking system –on which depositors, investors and the wider economy rely – depend on responsible behaviour and constructive engagement, not misplaced panic,” the SLBA said.