ECONOMYNEXT – The central bank is urging banks to lower interest rates on loans despite the suspension of foreclosure provisions (parate execution) which makes banks more cautious, Governor Nandalal Weerasinghe said.
Sri Lanka’s Justice Minister Wijedasa Rajapaksa has claimed that parate execution is archaic and hurting SMEs, and the cabinet has proposed a suspension of parate execution for both large and small borrowers.
Banks have warned that it would make them more cautions in lending, and SMEs are likely to have reduced access.
“It hurts small businesses rather than helps,” Governor Weerasinghe told reporters. “It is only for six months and we hope the debt recovery process will be improved.”
The central bank has provided monetary stability since September 2022 and interest rates have started to fall with corrections in the deficit and also state enterprise borrowings.
Lending rates have also fallen over the past year.
“We have urged banks to lower interest rates and supply more credit despite the government’s decision to suspend the parate execution for six months,” Governor Weerasinghe said.
The Director of Economic Research said SMEs were given loans at rates of up to 17.5 percent.
The rate depends on the risk premium of individual businesses, Governor Weerasinghe said. (Colombo/March26/2024)