New ombudsman likely to address grievances of bank borrowers
The appointment of a new ombudsman is being considered along with necessary legal protection to be provided for borrowers experiencing default situations in the repayment of loans obtained from banks due to financial difficulties in the COVID-19 pandemic period.
The Government will appoint a new ombudsman or provide more powers to the present financial ombudsman to redress the grievances of borrowers and prevent banks from auctioning of land and property mortgaged to banks and taking legal action in managing defaults.
The Finance Ministry will explore the possibility of giving more powers to the present financial ombudsman by amending the Banking Act or seek the appointment of a new ombudsman, Treasury Secretary S.R. Attygalle told a meeting of top officials chaired by Prime Minister Mahinda Rajapaksa.
The Financial Ombudsman has the power to inquire into and settle any complaints and disputes between individual customers and the financial institutions covered by the Ombudsman Scheme.
But he has no powers to decide on legal matters relating to loans default and auctioning of land and property in case of loan default etc.
With the concurrence of the Central Bank and as part of the Financial Sector Reforms, a voluntary scheme entitled “Financial Ombudsman, Sri Lanka” has been established by the banking industry.
The scheme will be funded and coordinated by a company incorporated by the above mentioned financial institutions called The Financial Ombudsman Sri Lanka (Guarantee) Ltd.
The objective of the Ombudsman scheme is the satisfactory settlement and resolution of complaints/disputes by customers of banks and other financial institutions.
But this new additional ombudsman proposed by the Prime Minister will be appointed by the government with powers.
However Mr. Attygalle has not ruled out the appointment of this new ombudsman on the directions of the Premier to tackle specific issues arising out of COVID-19 pandemic and economic downturn.
New legislation or amendments to existing relevant banking laws including Recovery of loans by Banks (Special Provisions) Act will be introduced to safeguard the rights of bank customers.
The aim is to increase oversight and clarify the laws governing financial transactions in order to protect consumers in these transactions.
These directives were issued by Prime Minister and Finance Minister Mahinda Rajapaksa at a March 15 meeting with top officials and industrialists held at the ministry.
He emphasised the need of changing the present system of auctioning land and property mortgaged to banks by borrowers when obtaining loan facilities.
It has been revealed that the COVID-19 environment has created legal uncertainties as some of the relevant issues including mortgages and responsibility of sureties have not been extensively tested in the courts.
On the other hand banks are also facing complexity and uncertainty on the business front while tackling challenging underwriting issues, officials said.
Non-performing loans at commercial banks increased to 6.8 per cent in 2020 from 4.7 per cent by end-2019, prior to the economic disruptions from the pandemic, provisional data of the Treasury showed.
During the time of various instabilities and the COVID-19 outbreak, the banking sector had to undergo various changes in response to the demands of the macro economy, it was pointed out.
Banking sector profitability is to remain under stress in the low interest rate environment, restrained loan growth, restrictions on non-interest income and the risk of higher non-performing loans (NPLs).
Banking sector profitability will affect badly in the short term as result of restructuring of loans and NPLs especially after the expiration of the loan moratorium.