SLBA faces scrutiny after calling the Rs. 13 billion banking fraud isolated, raising fresh concerns over risk, regulation, and deposits.
The SLBA press release claiming Sri Lanka’s banking sector remains stable despite recent massive financial frauds has triggered a serious debate over whether the system is truly safe or merely managing public perception.
The Sri Lanka Banks’ Association recently stated that the country’s banking sector is stable and that the massive frauds reported in recent weeks were only “isolated incidents.” The statement also claimed that public deposits have not been affected and that the relevant banks themselves would absorb the losses.
However, when such institutional self-certifications are examined through economic theory and financial management principles, a different picture begins to emerge. What appears on the surface as reassurance may not be proof of genuine stability, but rather a familiar “damage control” exercise aimed at concealing deeper systemic weaknesses.
The Myth Of An “Isolated” Incident
An internal financial fraud amounting to Rs. 13.2 billion cannot reasonably be brushed aside as an “isolated incident.” In economic terms, this represents a serious failure of operational risk.
The fact that the fraud was allegedly carried out over nearly two years by exploiting weaknesses in the CEFTS, or Common Electronic Fund Transfer Switch system, directly raises questions about senior management oversight and the effectiveness of internal audit divisions.
Against a background where banks often claim to operate world-class risk management systems, this cannot be treated as a simple one-off event. It points instead to deeply embedded weaknesses in corporate governance.
The Risk Behind “Deposits Are Safe”
The assurance that these losses will not be recovered from public deposits, but instead absorbed through bank capital buffers, may sound comforting to ordinary customers at first glance.
Yet according to theories of financial stability, a serious danger is hidden behind that statement.
A bank’s capital buffers are its final defence wall against future economic shocks. When those buffers are weakened by fraud, the bank’s liquidity and solvency can come under serious pressure.
There is another important question. If the majority shareholding, amounting to 51%, of the relevant bank is held by the government, does the destruction of corporate capital in this manner not also amount to an indirect destruction of public wealth and investor assets?
Central Bank’s Regulatory Failure
The Central Bank has stated that bank liquidity ratios remain above required levels and that it is ready to provide temporary liquidity support if necessary.
But if there is truly no threat to the system, the natural question is why the Central Bank is already prepared to provide “emergency support.”
The failure of the Central Bank’s Bank Supervision Department to take effective action before frauds worth billions of rupees occurred raises serious questions about the regulatory credibility of the entire financial system.
Avoiding Responsibility
Another worrying feature is the banking system’s attempt to avoid responsibility by portraying frauds linked to digital transactions, including phishing, as the fault of customers.
According to the economic theory of information asymmetry, there is a wide gap in technical knowledge between banks and ordinary customers. In the digital age, protecting the applications introduced by banks and improving digital literacy are primary responsibilities of the banking sector itself.
At a time when international scam gangs are reportedly operating out of Sri Lanka, the entire blame cannot simply be pushed onto the customer.
Sri Lanka has seen financial sector crises before, including the collapse of institutions such as Pramuka Bank. Therefore, internal weaknesses within the financial system are not new to the country.
It may be true that the current banking system has not collapsed. But in the face of massive internal frauds, regulatory weaknesses, and operational failures, the sector is no longer in a position to passively claim that it is “perfectly safe” without facing serious questions.
The public cannot rely only on theatrical reassurance delivered through media releases.
Instead of blindly trusting institutional self-certifications, citizens now need to be far more vigilant about their financial transactions, digital transfers, bank accounts, and deposits.
