Sri Lanka to Introduce Regulatory Authority for Auctioning Defaulted Loan Assets

Sri Lanka is in the process of establishing an intermediary regulatory authority to assess whether assets from defaulted loans should be auctioned using parate execution powers, according to Justice Minister Wijedasa Rajapaksa.

With parate execution powers, a bank’s board can auction off assets from loans in default, typically as a last resort for loan recovery.

Minister Rajapaksa emphasized the necessity of this intermediary authority, indicating plans to propose an amendment to parliament for its establishment.

This regulatory body will issue a “certificate” deeming the sale of secured assets from non-performing loans as justified. The authority will review if the default was intentional, explore the possibility of loan restructuring and issuing a new loan to allow the business to recover, or determine if negligence was a factor, all in an effort to safeguard banks.

He mentioned that under the Mortgage Act, asset recovery currently requires a court order.

Bankers have expressed concerns that removing parate execution rights could lead to stricter lending regulations to protect depositors, potentially making credit access more challenging.