-By LeN Business Correspondent
(Lanka-e-News -28.June.2025, 11.05 PM) Sri Lanka’s once-resilient small and medium enterprise (SME) sector is on the verge of annihilation. Behind the glossy headlines of debt restructuring deals and IMF bailouts, an economic massacre is taking place in silence: an estimated 120 businesses are being auctioned off by Sri Lankan banks every single day.
The numbers are not only staggering—they are morally chilling.
As the temporary suspension of parate execution laws—which restrict banks from seizing mortgaged property without court approval—expires on June 30th, business owners warn of a brutal new wave of property seizures that threatens to destroy what little remains of Sri Lanka’s private sector. With over Rs. 5 billion worth of distressed loans hanging over small and mid-sized businesses, banks are now legally positioned to pounce—and they are doing so with startling aggression.
“This is not just economic recovery—it is organised economic annihilation,” says Susanta Liyanarachchi, President of the Sri Lanka Construction Association. “Banks are asset-stripping SMEs like vultures feasting on a carcass.”
The parate execution provision—a controversial piece of colonial-era legislation—allows licensed commercial banks in Sri Lanka to seize and sell off collateralised property without having to obtain a court order. Originally introduced to expedite the recovery of bad debts, it has in recent years become the financial equivalent of a weapon of mass destruction—especially amid an economic crisis.
During the worst months of Sri Lanka’s debt default in 2022–23, the government suspended this provision in a bid to provide breathing room to the business sector. That reprieve is now ending. From July 1st, banks will resume full powers under the Parate Act to seize properties, liquidate assets, and recoup their loans—no questions asked, no court oversight required.
And they are preparing aggressively.
“Already, we’re seeing an average of 120 auctions a day,” says a senior legal officer at the Bank of Ceylon, speaking off the record. “Most of these are from SMEs who borrowed when interest rates were at 12%. They had no idea it would rocket to 30% almost overnight.”
The Sri Lankan economy has been teetering on a tightrope for years. But when the Central Bank hiked interest rates to curb inflation and salvage the rupee, borrowers were the first casualties.
Take the case of Wasantha, a mid-sized garment manufacturer from Gampaha. In 2021, he took a Rs. 8 million business loan at 12% interest to expand operations. By 2023, the interest rate had surged to over 28%, and his monthly repayments tripled. With exports in decline and domestic demand collapsing, he couldn’t keep up. His factory, which employed 40 people, was seized and auctioned by a state bank last month—for Rs. 4.2 million. Half of its book value.
“They took everything,” he says. “They didn’t just take the property. They took the livelihoods of 40 families. They took 20 years of my life.”
Multiple entrepreneurs interviewed by The Lankaenews allege that banks are auctioning off assets far below market value—often to favoured buyers or insiders. In one documented case, a property worth over Rs. 40 million was auctioned for Rs. 8 million, leaving the original owner still liable for the remainder of the debt.
“This is financial fraud disguised as loan recovery,” says Senanayake, a former banker turned whistleblower. “The banks make their money. The buyers get the assets cheap. And the original borrowers are still drowning in debt.”
The auctions are often rushed, poorly advertised, and conducted without the presence of the borrower—making it impossible to contest the pricing or legality of the process.
Business owners claim that attempts to renegotiate loan terms have been met with silence—or in some cases, contempt.
“We sat with the bank three times,” says Amarasinghe, a spice exporter from Matale. “We showed them cashflow projections, asked for restructuring. They nodded politely and then sent us an auction notice. That’s their version of negotiation.”
Industry leaders argue that the banks—many of them state-owned—have received liquidity injections and foreign aid to cushion bad loans. But instead of offering relief, they are choosing to recover loans by liquidating their most vulnerable customers.
“The government bailed out the banks,” says Liyanarachchi. “But who is bailing out the businesses?”
This isn’t merely a story of numbers and debt ratios. It’s a human tragedy playing out in slow motion.
Sri Lanka’s SME sector contributes over 52% of GDP and employs more than 45% of the labour force. With businesses going under at record rates, a domino effect is underway—affecting workers, suppliers, service providers, and families.
At a time when Sri Lanka is already struggling with record-high youth unemployment, inflationary pressure, and stagnant foreign investment, the mass liquidation of the SME sector could push the economy from stagnation into a full-blown depression.
“We don’t need more rescue packages for the banks. We need a moratorium, a fair mediation process, and legal oversight over parate enforcement,” says an opposition MP involved in the finance oversight committee. “This is no longer sustainable. It’s economic cannibalism.”
Amidst this chaos, a new and unexpected front is emerging: human rights law.
Several business owners are now preparing to lodge complaints with the UN Human Rights Council in Geneva, arguing that parate seizures constitute a violation of economic and property rights under international conventions.
“What the banks are doing is arbitrary seizure,” says a Colombo-based legal scholar specialising in constitutional rights. “There is no judicial review. No due process. No right to contest. It is eerily similar to forced eviction.”
According to Article 17 of the Universal Declaration of Human Rights, “No one shall be arbitrarily deprived of his property.” Sri Lanka is a signatory.
“If the government does not act, we will go international,” says Nimal Wickremasinghe, a hotelier from Anuradhapura whose boutique resort was recently auctioned off by a commercial bank. “We are being robbed legally.”
Ironically, Sri Lanka’s economic policy direction is currently underwritten by the International Monetary Fund (IMF). While the IMF’s programmes typically require fiscal discipline and debt recovery, critics argue that in Sri Lanka’s case, the policy has tilted too far in favour of banks, with little regard for real economy repercussions.
The IMF has thus far remained silent on the issue of parate seizures. But if complaints reach Geneva, and if global media attention increases, that may soon change.
“We need the IMF to pressure Sri Lanka not just to balance budgets, but to protect livelihoods,” says Karunaratne, a civil society advocate working with affected SMEs. “Without SMEs, there will be no recovery to speak of.”
Experts suggest the following urgent reforms:
Re-suspend the parate execution law until an independent regulatory framework is in place.
Establish a fair mediation board for SME debt resolution—akin to bankruptcy protection mechanisms in other democracies.
Mandate judicial oversight on all asset seizures over a certain value threshold.
Introduce mandatory valuation transparency—no asset may be auctioned for less than 75% of its certified market value without appeal rights.
Create a National SME Protection Fund to stabilise key industries during the economic recovery.
Sri Lanka has survived wars, tsunamis, and revolutions. But what is unfolding now may be even more insidious: a state-sanctioned liquidation of its entrepreneurial class.
Banks—armed with impunity and shielded by colonial-era laws—are dismantling the SME backbone of the country in the name of fiscal repair. But there can be no economic future if the very engines of productivity are destroyed.
This is not loan recovery.
This is economic scorched earth.
And unless the government acts now, the “recovery” that politicians so proudly speak of will arrive too late, with too few businesses left standing to benefit from it.
-By LeN Business Correspondent
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by (2025-06-28 17:45:28)
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