People’s Bank LOLC loan claims involving a proposed Rs. 20 billion facility raise questions over collateral, exposure limits and regulatory oversight.
COLOMBO — Questions are being raised over an alleged proposal for People’s Bank to extend a short-term loan facility of Rs. 20 billion to LOLC Mauritius Holdings Limited, following the circulation of what has been described as a confidential corporate document relating to the proposed transaction.
The claim, first highlighted in reporting by Sri Lanka Mirror and subsequently circulated widely on social media, concerns an alleged facility involving one of Sri Lanka’s largest State-owned banks and an offshore subsidiary connected to the LOLC group.
No evidence contained in the material reviewed by The Morning Telegraph establishes that People’s Bank has actually disbursed Rs. 20 billion to LOLC Mauritius Holdings.
People’s Bank Chairman Chandana Gunawardena has publicly stated that the document circulating online has “no basis whatsoever” and that the bank has “not at present” granted such a loan.
That denial is significant.
It does not, however, answer every question surrounding whether a facility was proposed, considered, discussed or approved at any stage.
For a transaction of this scale involving a State bank, clarity is essential.
What Does “Not at Present” Mean?
Gunawardena’s statement has become a focal point because it denies that such a loan has presently been granted but, as reported in the source material, does not appear to address whether a proposal existed or remains under consideration.
The timeline cited in the material raises several questions:
- Gunawardena was appointed Chairman of People’s Bank on August 10.
- The alleged proposal was said to have been adopted shortly thereafter.
- The Chairman subsequently stated that no such loan had been granted “at present”.
Those circumstances do not establish that People’s Bank intends to approve the facility later.
Nor do they prove that the circulating document is authentic.
They do, however, make it reasonable to seek a more comprehensive statement answering whether the alleged transaction was ever proposed to the bank, considered internally or discussed with LOLC Mauritius Holdings.
A categorical explanation would remove uncertainty far more effectively than speculation based on the wording of a press statement.
1. Would a Rs. 20 Billion Exposure Comply With Banking Rules?
One of the central questions concerns Sri Lanka’s regulatory limits on large exposures.
The source article refers to the Central Bank of Sri Lanka’s Banking Act Direction No. 1 of 2024 on Large Exposures and states that exposure to a single borrower or connected group is subject to limits linked to a bank’s Tier 1 capital.
The material specifically cites a 25 percent threshold.
Whether a proposed Rs. 20 billion facility would comply with the applicable limit would depend on People’s Bank’s eligible regulatory capital, the precise legal identity of the borrower, whether related entities are treated as a connected group, the nature of the facility and any other applicable regulatory provisions.
Those matters cannot be determined from the alleged board document alone.
The relevant question for People’s Bank and the Central Bank is therefore straightforward: if such a facility was considered, would it fall fully within the applicable large-exposure rules?
That is a matter capable of being answered through regulatory calculations and documentation rather than political accusation.
2. What Is the Status of the Proposed Dollar Collateral?
The material states that the proposed Rs. 20 billion facility would be secured by foreign-currency fixed deposits held by LOLC Mauritius.
If accurate, that arrangement raises technical questions that require explanation.
Among them are:
- Where are the foreign-currency deposits held?
- In whose name are they registered?
- Would People’s Bank have a perfected and legally enforceable security interest over them?
- In the event of default, what legal mechanism would allow the bank to realise the collateral?
- Would foreign-exchange movements create material currency risk?
- Would the deposit value be maintained at a sufficient margin throughout the life of the facility?
Foreign deposits can, in principle, be used as collateral in financing arrangements.
Their location outside Sri Lanka does not automatically make them invalid or unsafe.
The real issue is enforceability.
A State bank considering a large secured loan should be able to demonstrate that its collateral is legally accessible, appropriately valued and sufficient to cover the bank’s exposure if the borrower fails to repay.
The source material also raises the possibility of currency arbitrage.
No evidence reviewed here establishes that the alleged proposal was designed as a foreign-exchange arbitrage scheme.
That possibility should therefore not be presented as fact.
If the transaction existed, its commercial purpose, currency structure and risk profile should be explained by the institutions involved.
3. What Is the Financial Position of LOLC Mauritius Holdings?
Another question concerns the borrower itself.
The alleged facility is said to involve LOLC Mauritius Holdings Limited rather than the Sri Lankan parent entity.
That distinction matters.
Before granting a facility of Rs. 20 billion, a bank would ordinarily be expected to assess the borrower’s balance sheet, cash flow, repayment capacity, ownership structure, existing liabilities and the quality of any security offered.
The source raises concerns over whether an offshore subsidiary would independently have sufficient financial strength to support such borrowing.
No evidence supplied establishes that LOLC Mauritius lacks the assets or capacity required for the transaction.
Nor does the mere fact that a company is registered in Mauritius establish that it is a shell company or that its structure is improper.
The relevant question is whether People’s Bank, if the facility was considered, conducted appropriate credit appraisal and due diligence on the actual borrowing entity.
If reliance was placed on support from a parent or affiliated company, the nature and legal enforceability of that support should also be clear.
4. Who Created the Document and Why?
If People’s Bank maintains that the document circulating online has no basis, the origin of that document becomes important.
Was it an authentic internal corporate paper?
Was it a draft?
Was it a proposal prepared by LOLC Mauritius without a corresponding commitment from People’s Bank?
Was it altered or fabricated?
Or does it accurately reflect a transaction that was considered but not completed?
Those possibilities carry very different implications.
An authentic board document referring to a State bank does not necessarily mean that the bank approved or agreed to the transaction.
Companies routinely prepare proposals, financing plans and board papers concerning facilities that may never ultimately be granted.
For that reason, the existence of a company document alone cannot establish that People’s Bank committed itself to a Rs. 20 billion loan.
A clear explanation from both People’s Bank and LOLC would help establish the document’s authenticity, status and purpose.
5. What Role Does LOLC Mauritius Play in Africa?
The source material also refers to LOLC’s operations in several African markets, including Zambia, Tanzania, Malawi, Egypt, Nigeria, Zimbabwe, Congo and Ghana.
It questions whether a large proposed facility from a Sri Lankan State bank could have been intended to strengthen perceptions of the Mauritius entity’s financial capacity internationally.
No evidence provided establishes such a strategy.
The suggestion should therefore be treated as speculation unless supported by corporate documents, investor communications or other evidence.
What is legitimately relevant is the purpose of the alleged borrowing.
If LOLC Mauritius sought a Rs. 20 billion facility, stakeholders are entitled to ask what the funds were intended to finance, whether they were to remain within the group, and what commercial activity would generate repayment.
Those questions are particularly important where a State-owned bank is alleged to be considering a large exposure to an offshore borrower.
Public Deposits Require Strong Governance
People’s Bank holds deposits belonging to millions of customers, including workers, farmers, pensioners, businesses and ordinary households.
That does not mean the bank should avoid lending to large corporations.
Corporate lending is a normal and important function of commercial banking.
Large companies may legitimately borrow substantial sums where credit assessments, collateral, regulatory limits and risk-management requirements are satisfied.
The issue is not the size of a borrower.
It is whether the bank follows the same principles of prudence, documentation and regulatory compliance expected in every major lending decision.
A Rs. 20 billion facility would be material enough to justify clear governance, particularly if the borrower is an offshore entity within a major corporate group.
Three Institutions Can Resolve the Uncertainty
The controversy does not require accusation or speculation to be resolved.
Three institutions are capable of providing clarity:
- People’s Bank;
- the Central Bank of Sri Lanka; and
- the Ministry of Finance.
People’s Bank can state whether the facility was ever proposed, considered or approved and clarify the authenticity and status of the circulating document.
The Central Bank can confirm whether any such exposure would comply with applicable large-exposure and prudential requirements without disclosing confidential information that it is legally prohibited from releasing.
The Ministry of Finance, as the State shareholder responsible for oversight of public financial institutions, can determine whether any governance concern requires further examination.
LOLC and LOLC Mauritius Holdings should also be given the opportunity to explain the purpose and status of any financing proposal attributed to them.
The Public Needs Facts, Not Speculation
The circulating document and the Chairman’s statement have created a situation in which speculation is filling gaps that could be closed through straightforward disclosure.
At present, the material does not establish that Rs. 20 billion has been disbursed by People’s Bank to LOLC Mauritius.
It does not establish a breach of Central Bank regulations.
It does not establish that collateral was inadequate or inaccessible.
It does not establish foreign-exchange manipulation, deception of investors or any conspiracy to place public deposits at risk.
What it does establish is that a serious allegation involving a proposed Rs. 20 billion facility has entered the public domain and that the response so far has not settled every question surrounding the alleged transaction.
The appropriate response is therefore not to declare wrongdoing before the facts are known.
It is to establish the facts.
If the document is false, the institutions involved should say so conclusively and explain its origin if that can be determined.
If it reflects an abandoned proposal, the public should be told that.
If the facility remains under consideration, the bank and regulators should be able to confirm that any decision will comply fully with prudential, governance and risk-management requirements.
People’s Bank safeguards public deposits, but it is also a commercial bank expected to lend responsibly and support legitimate economic activity.
Those two responsibilities are not contradictory.
Transparency is what connects them.
