By Banker
This is unbelievable, to say the least.
The reported Rs. 13.64 billion fraud at National Development Bank (NDB) has raised fundamental questions about corporate governance, financial reporting, external auditing and banking supervision in Sri Lanka. But the issue now extends beyond the bank itself. It concerns the credibility of our entire financial oversight framework.
The most troubling question is whether investors were given a complete and accurate picture of NDB’s financial position when it raised approximately Rs. 16 billion through a debenture issue. If material losses had already accumulated, were they properly recognised and disclosed? What did the Board know? What did the external auditors examine? And what did the Central Bank of Sri Lanka know, and when? Was it covered to raise the money?
These questions must be answered with evidence, not assurances.
COPF Team MPs Harsha and Ravi who understand Finance
Where were EY auditors ?
A fraud of this magnitude, reportedly sustained over an extended period, raises serious questions about the effectiveness of internal controls, audit procedures and professional scepticism. While an external audit cannot guarantee the detection of every fraud, material irregularities of this nature demand rigorous investigation.
If the auditors failed to identify significant warning signs or did not adequately challenge management representations, the relevant professional and regulatory authorities must investigate and impose appropriate sanctions where failures are established. An audit opinion cannot become a shield against accountability.
Is the CBSL part of the problem?
The Central Bank has a statutory responsibility to supervise banks, safeguard financial stability and maintain public confidence. The reported failure of multiple layers of oversight demands an independent and transparent examination of the supervisory process itself.
There is a danger that the focus could narrow to the individuals directly involved in the fraud, while the institutional failures that allowed it to continue remain insufficiently examined. Any suggestion that the CBSL is attempting to minimise or deflect responsibility must be tested against the documentary evidence and its public explanations. The Central Bank cannot be permitted to mark its own homework on an issue that raises questions about its own supervisory effectiveness.
This is precisely where the Committee on Public Finance (COPF) must rise to the occasion.
Parliamentary oversight exists for moments such as this. COPF must go beyond accepting official explanations and demand a complete chronology of events. It should summon the relevant NDB directors and executives, external auditors, internal audit representatives and CBSL officials, and require them to explain what was known, what was reported, what was disclosed to investors and what action was taken at each stage.
COPF should specifically examine the Rs. 16 billion debenture issue: the prospectus, audited financial statements, material risk disclosures, regulatory correspondence and the basis on which investors were invited to subscribe. Did the information available to investors fairly represent the bank’s financial position? Were any material facts omitted? Were regulatory approvals granted on a complete and accurate information set?
If there was a failure of disclosure, COPF must establish where responsibility lies. If regulatory inaction contributed to the problem, that too must be brought into the open.
Accountability cannot be selective
The CBSL must cooperate fully with parliamentary scrutiny. External auditors must answer for their professional responsibilities. The Board and management must explain the adequacy of their oversight. Where evidence establishes negligence, misconduct or breaches of law, the appropriate disciplinary, regulatory and legal consequences must follow.
NDB has indicated that it continues to meet regulatory capital and liquidity requirements. That is relevant, but it does not resolve the questions surrounding the fraud, the quality of financial reporting or the adequacy of investor disclosures.
Sri Lanka cannot afford a situation in which the institutions responsible for maintaining confidence in the financial system escape rigorous examination when that confidence is challenged.
COPF must seize this opportunity to establish the facts, identify institutional failures and demand accountability without fear or favour.This is not about protecting or attacking one bank. It is about protecting depositors, investors and the integrity of Sri Lanka’s capital market.The public deserves the truth. Investors deserve transparency. And no institution, however powerful, should be beyond scrutiny.
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