– Increase in Non Performing Loans
– Decrease in Banks Profitability
– Lower lending due to high credit risk
– Banks to face Liquidity/stability Issues
– Loss of Investor Confidence
Sri Lanka’s banking sector is on the edge after being forced to follow the government’s decision to suspend parate execution rights. This move, seen as caving to pressure from debt evaders’ intense lobbying, is raising concerns about the sector’s ability to support economic recovery.
How would suspension of part execution rights affect the banking sector shares
The suspension of parate execution rights can have significant implications for the banking sector shares. Parate execution is a legal remedy that allows banks to recover their non-performing loans by selling the mortgaged assets of defaulting borrowers. By suspending parate execution rights, the government restricts the banks’ ability to recover their loans, which can lead to an increase in non-performing loans and a decrease in the banks’ profitability.
When banks are unable to recover their loans, it can negatively impact their financial health and stability. This can erode investor confidence in the banking sector, leading to a decline in the share prices of banks. Investors may perceive the suspension of parate execution rights as a sign of increased credit risk and potential financial instability in the banking sector.
Furthermore, the suspension of parate execution rights can also affect the overall lending activity of banks. Banks may become more cautious in extending credit to borrowers, especially those with higher credit risks, due to the limited recourse available for loan recovery. This can result in a slowdown in lending, which can further impact the profitability and growth prospects of banks.
Overall, the suspension of parate execution rights can have a negative impact on the banking sector shares, as it raises concerns about the banks’ ability to recover their loans and maintain financial stability.
All Parate Executions have been suspended until 15 December 2024
All Parate Executions have been suspended until 15 December 2024, as per a Cabinet decision made on Monday (26 Feb.).
The relevant proposal was furnished by President Ranil Wickremesinghe, in his capacity as the Minister of Finance, following a request made by Justice Minister Wijeyadasa Rajapakshe and Minister of Industries Ramesh Pathirana.
Accordingly, the relevant amendments are due to be presented before the Parliament soon.
State Minister of Finance Ranjith Siyambalapitiya had informed Parliament last week that steps will be taken to suspend the powers of the ‘Parate execution’ law for a certain period for the purpose of protecting small- and medium-scale entrepreneurs (SMEs).
As per the Cabinet’s decision, the banks’ practice of acquiring properties of whose loans are yet to be paid off will be suspended until 15 December 2024 and Section 4 of the Recovery of Loans by Banks (Special Provisions) Act No. 4 of 1990 will be amended to facilitate the necessary legal provisions.