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Banks saddle with non-performing loans of Rs 1.4 trillion

By: Staff Writer

Colombo (LNW): While revealing that the total value of non-performing loans of all 30 banks functioning in Sri Lanka currently is Rs 1.4 trillion, the State Minister of Finance Ranjith Siyambalapitiya assured that steps would safeguard the economy.

“It is the banks that safeguard the country’s economy. More than 60 per cent of the total deposits in banks in Sri Lanka are less than Rs 5,000. Most of the deposits in banks are held by the poor people of the country. Therefore, the government will always safeguard them.” the State Minister told Parliament.

“Banks have recovered only a total of Rs 17 billion through Parate Execution during the past few years. Parate execution right is the rights given to banks to recover non-performing loans by auctioning assets which the borrowers had kept as collateral when obtaining loans.

 Banks have the legal rights to perform Parate execution to recover loans more than Rs 5 million,” the State Minister said.

 Sri Lanka’s banking sector is now saddled with additional pressure from the ever increasing non-performing loans given to covid-19 hit businesses and individuals under government’s relief scheme, finance ministry data underlined.

The coronavirus outbreak coupled with economic crisis and the resultant prolonged business disruptions have made it impossible for borrowers to repay their loans given under the scheme resulting bank’s credit profiles twisted to the down side, several general managers of leading banks disclosed.

Some of these banks are facing multiple challenges at present, including muted loan growth, margin declines amid lower interest rates, and rising loan-impairment charges due to asset-quality pressures, they claimed.

Asset quality in banks was deteriorating for the last 3 years. The construction sector, which the banks had the highest credit exposure to, often suffered liquidity shortages as a result of the delays in receivables from the state sector.

The banks experienced the construction-related non-performing loans (NPLs) rising. In addition, the tourism sector was impacted due to economic crisis.

There was a sharp increase in NPLs of banks with the expiration of the moratorium period,” general manager of a leading bank said.

According to latest Finance Ministry data, a massive sum of Rs. 1.6 trillion with accumulated interest as at March 31 2023 has to be repaid to the local banking sector by business enterprises, SMEs and individuals, hit by Covid -19 and subsequent economic crisis.

It has been indicated that non-settled loans obtained by affected business owners and persons under concessionary terms in five stages are now amounting to Rs1.6 trillion and it was 15.65 percent from the total debt stock.

Sri Lanka’s small and medium businesses are forced to default loans taken at a low interest of 7 percent at that time as the interest rates have been increased to 13 percent pushing them into in more trouble.

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