Banks grapple with new rules over directors’ terms

Banks are grappling with the new Mandatory Code of Corporate Governance for Sri Lankan banks particularly with the provision where a director can serve for only nine years or less.

According to the Code, to be implemented by the Central Bank from January, directors of banks in office for over nine years or who are in the age limit of over 70 years shall be deemed to have vacated the office as a director as at December 31, 2008. Secretary- General of the Sri Lanka Banks Association Upali de Silva told The Sunday Times FT that they have expressed concern on this matter as it will affect the stability of banks. He added that there will be a dearth of competent persons to serve as directors of banks in the long run once the Code becomes effective. However in subsequent discussions between the Central Bank and the association, it was agreed to introducing a transitional provision by which the longest serving director among those who exceed nine years will be sent on retirement. Thereafter, at the end of each succeeding year, the remaining directors shall vacate office in sequence, at least one director each year. This transitional provision will apply till 2011, De Silva said, adding that the Board of Directors of banks has been vested with huge responsibilities under the new Code.

Last week Ceylinco Group Chief Lalith Kotalawela and his Seylan Bank filed a writ application in the Appeal Court objecting to the enforcement of the new Governance Code saying it’s against the principles of natural justice.