Concerns are mounting over the legal rights of thousands of HSBC Sri Lanka customers particularly those classified as bad or non-performing borrowers following the Central Bank’s recent approval for Nations Trust Bank (NTB) to acquire HSBC’s retail banking business in Sri Lanka. Legal experts warn that the transfer raises serious questions about contractual validity, borrower protections, and potential unjust enrichment by NTB.

• No privity of contract exists between NTB and the borrower.
• NTB cannot enforce obligations without a valid and disclosed assignment.
• NTB cannot benefit twice from the debt through purchase price reduction and borrower repayment.
• HSBC and NTB cannot privately alter a borrower’s legal responsibilities without consent.
• CBSL is obliged to ensure transparency and protect borrowers.

The core issue centres on the absence of a direct contract between NTB and HSBC’s existing borrowers. Under fundamental principles of contract law, a borrower is bound only to the lender with whom they originally entered into an agreement. In this case, all retail borrowers, including those in default, signed legally binding contracts solely with HSBC Sri Lanka, not NTB.

Attorneys point out that for NTB to legally pursue recovery action against these borrowers, a formal assignment of rightsmust have occurred—and, more importantly, borrowers must have been notified and provided consent where necessary. Without proper legal assignment and formal disclosure, NTB’s enforcement powers remain questionable.

“It is a basic rule that obligations cannot be transferred to a new lender without the borrower’s consent,” one senior lawyer said. “No bank can step in and sue a borrower unless there is clear contractual privity and a valid, notified assignment.”

Questions have also surfaced around the fairness of NTB attempting to recover loans that have already been financially accounted for in the acquisition price. According to analysts familiar with the banking sector, the purchase valuation of HSBC’s retail business would have included adjustments for irrecoverable or bad debts. These deductions effectively compensated NTB upfront for expected losses on defaulted loans.

“To pursue recovery again from borrowers when NTB has already financially benefited through the purchase price adjustment would amount to double recovery an act that is both unethical and potentially illegal under principles of equity and unjust enrichment,” another expert argued.

Consumer advocates say the secrecy surrounding the NTB–HSBC agreement has only intensified public unease. They are calling on the Central Bank of Sri Lanka (CBSL) to immediately disclose the specific clauses that relate to the transfer or non-transfer of bad debts, and to clarify the legal rights of affected borrowers.

“There is no legal basis for two banks to enter into a private agreement that changes the financial obligations of borrowers without informing them,” consumer groups said in a joint statement. “Borrowers cannot be bound by a contract they never saw and never agreed to.”

Analysts warn that NTB could face legal challenges if it attempts to sue or pressure defaulting HSBC borrowers without establishing a clear contractual link. Borrowers may also be entitled to seek injunctions or regulatory remedies unless the Central Bank provides clarity on the legal framework governing these transfers.

With approximately 200,000 customer accounts expected to move under NTB’s purview, clarity from regulators is being seen as essential to prevent disputes, protect borrowers’ rights, and ensure that the acquisition is conducted within the bounds of Sri Lankan law.

For now, the Central Bank remains silent on whether the agreement contains provisions governing bad debt portfolios or how borrowers will be notified of any change in creditor. Legal professionals warn that without transparency, the acquisition risks creating significant legal and ethical complications for all parties involved.