Growing public concern over the reported Rs. 13.2 billion fraud linked to NDB Bank has intensified calls for the Central Bank of Sri Lanka to initiate independent forensic audits covering all banks and finance companies operating under regulatory supervision.
The controversy surrounding the alleged fraud at NDB Bank has triggered broader concerns regarding the effectiveness of internal controls, audit mechanisms, cyber security systems, and regulatory oversight within Sri Lanka’s financial sector. While NDB Bank has stated that customer deposits were not directly impacted and that immediate corrective measures were taken, the scale of the reported exposure has unsettled many depositors and raised wider questions about systemic vulnerabilities across the banking industry.
Public attention has now shifted beyond a single institution, with depositors and financial observers increasingly questioning whether similar weaknesses may exist within other licensed commercial banks and finance companies operating in Sri Lanka. Concerns have particularly focused on rapid digital banking expansion, online fund transfers, automated payment systems, treasury operations, offshore transactions, and the growing complexity of electronic financial infrastructure used across the sector.
Financial observers reviewing annual reports and financial disclosures of several major banks have also pointed to a number of 🚩Red Flags (As given below) that they believe require closer regulatory scrutiny and independent forensic evaluation. Among the concerns raised are unusually rapid growth in loan books and balance sheets within short periods, significant increases in customer deposits and digital transaction volumes, declining liquidity buffers despite rising profitability, weakening capital adequacy indicators, and aggressive expansion into high-risk lending sectors.
Analysts have also highlighted concerns regarding sharp reductions in reported impaired loan ratios during periods of aggressive lending growth, raising questions over loan restructuring practices, asset classification methodologies, impairment provisioning, and the possibility of stressed exposures being shifted or reclassified. Others have noted that rapid expansion in SME lending, offshore banking, wealth management, treasury operations, and foreign currency transactions may increase exposure to concentration risks, connected-party lending, and fund flow vulnerabilities if not subjected to enhanced oversight.
Additional concerns have emerged regarding the growing use of artificial intelligence, automated lending systems, fast-track credit approvals, digital onboarding platforms, and fully integrated online banking ecosystems. Financial analysts warn that rapid technological transformation, while improving efficiency, may also increase exposure to cyber fraud, unauthorised transactions, system override risks, identity manipulation, and internal control failures if governance and monitoring systems fail to keep pace.
Observers have further noted that several banks have experienced substantial deterioration in liquidity coverage ratios and funding stability indicators while simultaneously reporting strong profitability and rapid credit growth. According to analysts, such disparities do not necessarily indicate wrongdoing but may warrant deeper forensic examination into treasury management practices, funding structures, risk-weighted asset calculations, and stress management frameworks.
Separate reports relating to cyber intrusions, treasury-related digital systems, and electronic financial infrastructure have further intensified fears about the resilience of Sri Lanka’s wider financial ecosystem. Financial sector observers caution that public confidence remains the foundation of any banking system, and that failure to address emerging concerns transparently could undermine trust across the entire financial sector.
Against this backdrop, depositors are now urging the Central Bank to expand its response beyond NDB Bank and initiate a comprehensive, industry-wide forensic review covering all licensed commercial banks, specialised banks, registered finance companies, and electronic payment platforms operating under its supervision.
Many depositors believe that only a transparent and independent forensic audit process can restore confidence in Sri Lanka’s financial system and reassure the public that adequate safeguards exist to protect depositor funds and maintain financial stability.
Financial analysts have meanwhile called for stronger regulatory reforms, including enhanced cyber security standards, real-time transaction monitoring systems, stricter disclosure obligations for operational losses and fraud incidents, tighter supervision of digital banking platforms, stronger scrutiny of rapid loan growth and liquidity movements, and greater accountability for boards of directors, audit committees, and senior management.
What began as an investigation into a single fraud allegation has now evolved into a wider national debate concerning banking governance, institutional accountability, financial transparency, cyber resilience, and the effectiveness of regulatory supervision within Sri Lanka’s banking and finance sector.
RED FLAGS
🚩 COMMERCIAL BANK OF SRI LANKA
- Gross loans and advances expanded aggressively from Rs. 1.487 trillion to Rs. 2.028 trillion within one year — an increase exceeding Rs. 540 billion — substantially outpacing broader economic growth. Such accelerated credit expansion may require forensic review into large borrower concentrations, connected-party lending, rapid loan approvals, and possible asset inflation risks hidden within the portfolio.
- Customer deposits rose sharply from Rs. 2.237 trillion to Rs. 2.609 trillion while the loan-to-deposit ratio climbed to 77.73%, indicating significantly higher deployment of depositor funds into credit exposure. The disparity between deposit growth and loan expansion may warrant deeper examination of liquidity buffers, high-risk sector exposure, and the sustainability of funding structures under stressed conditions.
- The Stage 3 impaired loan ratio reduced materially from 2.76% to 1.54% despite extremely rapid loan book growth, while impairment coverage simultaneously increased from 64.61% to 73.50%. Such unusually strong asset-quality improvement during aggressive balance-sheet expansion may require forensic verification of restructurings, rescheduling practices, recoveries, write-backs, and possible migration of stressed accounts between classifications.
- Capital adequacy indicators weakened despite profitability growth. Tier I capital declined from 14.227% to 13.035% and total capital ratio declined from 18.142% to 16.698%, while the bank simultaneously raised Rs. 15 billion through Basel III-compliant green bonds. This combination suggests elevated balance-sheet pressure and may justify detailed review into capital consumption, risk-weighted asset calculations, off-balance-sheet exposure growth, and potential hidden stress in lending segments.
- Liquidity ratios declined sharply across all major indicators despite remaining above regulatory minimums. Rupee liquidity coverage ratio dropped from 529.20% to 419.40%, all-currency liquidity coverage ratio declined from 454.36% to 288.58%, and net stable funding ratio fell from 187.29% to 163.94%. The simultaneous deterioration of liquidity buffers during accelerated lending and digital expansion may require forensic scrutiny into treasury operations, foreign currency mismatches, wholesale funding dependence, and systemic exposure risks similar to emerging concerns seen in other banking sector irregularities.
🚩 SEYLAN BANK
- Seylan Bank’s gross loans and advances surged from LKR 462.95 billion to LKR 599.80 billion within a single year — an expansion of nearly 30%. This pace of credit growth significantly exceeded deposit growth of 13.32%, potentially indicating elevated risk appetite, aggressive loan origination practices, or concentration exposure in rapidly expanding sectors. Such disparities may warrant forensic examination into underwriting standards, related-party exposures, collateral valuations, and restructuring patterns.
- Despite aggressive balance sheet expansion, the Bank reported a dramatic reduction in impaired Stage 3 loan ratios from 2.10% to 1.03%, representing a decline of over 50%. Simultaneously, Stage 3 impairment coverage improved from 81.79% to 86.33%. Such unusually strong asset quality improvements during accelerated lending growth may require deeper scrutiny into loan classification methodologies, restructuring arrangements, recovery recognition, rescheduling practices, and potential migration of stressed facilities outside impaired categories.
- Regulatory liquidity indicators deteriorated materially during the year even though they remained above minimum requirements. The all-currency liquidity coverage ratio fell sharply from 491.37% to 229.92%, while rupee liquidity coverage dropped from 415.75% to 227.99%. Net Stable Funding Ratio also declined from 144.76% to 127.25%. The simultaneous reduction in liquidity buffers alongside aggressive lending expansion may justify forensic assessment into treasury operations, wholesale funding dependence, liquidity stress assumptions, and maturity mismatches within funding structures.
- Capital adequacy ratios weakened despite record profitability and the successful issuance of a LKR 15 billion Basel III-compliant Tier II debenture. Common Equity Tier 1 ratio declined from 14.25% to 12.39%, while leverage ratio reduced from 8.16% to 7.47%. This suggests that risk-weighted asset growth substantially outpaced internal capital generation, potentially indicating elevated exposure growth, higher-risk lending concentration, or pressure on balance sheet resilience. These movements may require detailed forensic review of capital allocation and risk-weight calculations.
- Seylan Bank’s total assets increased sharply from LKR 779.69 billion to LKR 921 billion while profit after tax rose above LKR 12 billion, representing the highest profitability in its history. However, the bank simultaneously accelerated offshore lending, SME expansion, rapid digital transformation, AI integration, and fast-track credit approvals including 72-hour SME lending decisions. The speed of operational expansion across multiple high-risk areas may warrant forensic analysis into governance oversight, internal controls, cybersecurity resilience, automated credit assessment systems, and compliance monitoring frameworks to identify hidden systemic vulnerabilities.
🚩 SAMPATH BANK
- Gross loans and advances increased sharply by 26.9% from Rs 964.6 billion to Rs 1.224 trillion within one year, substantially outpacing overall asset growth, which may require forensic examination of loan approvals, related-party exposures, and possible concentration risks.
- Deposits surged by Rs 178 billion in a single year while the loans-to-deposits ratio rose from 65.65% to 74.28%, creating a disparity that may warrant review of large account movements, liquidity management practices, and unusual funding sources.
- The impaired loans (Stage 3) ratio dropped significantly from 4.69% to 3.31% despite aggressive lending growth, which may require forensic verification of loan restructuring practices, impairment reversals, and possible masking of non-performing exposures.
- Impairment reversals improved dramatically from a negative Rs 11.7 billion to negative Rs 637 million, raising questions about recoveries, reclassifications, and whether asset quality improvements accurately reflect underlying borrower risk.
- Rapid expansion in AI-powered lending, digital banking platforms, API banking, private banking, and high-value customer operations increases exposure to unauthorized transactions, hidden fund flows, cyber fraud risks, and weak oversight controls that may require independent forensic review similar to concerns emerging in recent banking fraud cases.
🚩 DFCC BANK
- Unusually rapid growth in loans and receivables from LKR 395 billion to LKR 515.5 billion within a single year, which may indicate possible undisclosed related-party lending, inflated asset values, or weak credit verification requiring forensic tracing.
- Sharp increase in cash and short-term funds from LKR 27 billion to LKR 63.2 billion despite broader banking sector stress conditions, raising concerns about temporary balance manipulation, unexplained inflows, or possible concealment of liquidity risks.
- Depositor liabilities surged by nearly LKR 100 billion in one year, requiring forensic examination of large deposit movements, unusual account concentrations, dormant account activity, and possible layering of funds similar to concerns raised in the NDB fraud controversy.
- Profitability increased significantly while capital ratios declined, creating a disparity that may require investigation into impairment provisioning, possible understatement of bad loans, or accounting treatments masking underlying financial stress.
- Expansion into wealth banking, foreign currency accounts, remittances, and digital banking platforms increases the risk of hidden transactions, unauthorized fund transfers, circular movements of money, and weak monitoring controls that warrant an independent forensic audit.
