Sri Lanka’s financial sector has come under intense scrutiny following revelations of a massive fraud at National Development Bank PLC, with Parliament’s watchdog raising serious concerns about governance failures and regulatory blind spots.
The Committee on Public Finance (CoPF), chaired by Harsha de Silva, has flagged what it described as “significant lapses in corporate governance” at National Development Bank PLC, alongside delayed disclosures and supervisory shortcomings by the Central Bank of Sri Lanka.
The controversy centers on an alleged Rs. 13.2 billion fraud that reportedly went undetected for over 18 months. Early warning signs—particularly a sharp rise in CEFT-related receivables—were not acted upon in time, raising critical questions about internal risk management systems and board-level oversight.
The issue was taken up during a recent CoPF session attended by Central Bank Governor Nandalal Weerasinghe and senior monetary officials. The Committee emphasized the urgency of the situation, calling for immediate corrective action and warning that continued parliamentary scrutiny would follow.
In response, the Central Bank confirmed that a preliminary investigation is underway, with assurances that findings will be reported promptly. However, the Committee made clear that both banks and regulators must act swiftly in cases of suspected financial misconduct, given the potential threat to financial system stability.
Investigations have revealed that the fraud involved internal collusion, with employees allegedly exploiting weekend CEFT transaction windows. One key suspect, reportedly an assistant manager, is accused of using colleagues’ login credentials to carry out unauthorized transactions. Authorities have also linked part of the operation to cryptocurrency channels, adding a layer of complexity to recovery efforts.
Law enforcement has already remanded multiple suspects, with courts rejecting bail applications due to concerns over witness interference. The ongoing probe, led by the Criminal Investigation Department, is expected to uncover further details about the scale and mechanics of the fraud.
Financially, the fallout has been severe. The bank has fully provisioned for the loss, resulting in an estimated Rs. 4 billion loss in the first quarter of 2026 and a broader net impact of around Rs. 7 billion. While capital levels remain above regulatory minimums, buffers have weakened, prompting tighter oversight from the Central Bank, including a suspension of dividend payments.
The incident has also shaken market confidence. Fitch Ratings downgraded the bank’s rating and assigned a negative outlook, citing weakened profitability, strained capital buffers, and deficiencies in internal controls.
Ultimately, the scandal underscores deeper systemic concerns. Without stronger governance frameworks and proactive regulatory supervision, such incidents risk eroding public trust in Sri Lanka’s financial institutions an outcome the authorities appear determined to prevent.
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