The Sunday Times FT - Fit and proper bank directors

In order to ensure compliance with practices of good corporate governance at local banks the Central Bank of Sri Lanka has introduced many regulations in the recent years. One such important piece is the code of conduct for directors of banks operating in Sri Lanka. In short, according to this regulation a director of a bank should be a “Fit and Proper” person to hold such position.

This is considered a very important regulation as directors of a bank have the onerous responsibility of safeguarding the interests of the depositors.

It should be mentioned here that in the banking industry, customer deposits are usually around ten times that of shareholders capital thereby making it absolutely important for bank directors to be responsible individuals whose integrity is unquestionable to ensure that the depositors money are safe guarded at any cost.

However, sadly this requirement “Fit and Proper” appears to be a very easy hurdle to cross these days with many dubious persons getting into boards of banks merely by acquiring a shareholding which would ensure them a seat in the board. Actually the rot first set in at state banks where the government in power appointed those without any financial or banking background as directors. Private banks quickly followed by appointing highly questionable characters merely because of their deep pockets.

A leading private bank which has a massive deposit base of over Rs. 100 billion has at least one individual in their board who may not stand up to the “Fit and Proper” test.

It is a well known fact that this individual has proved his mettle by breaking all laws relating to Inland Revenue, Customs Duty, Excise Duty and the criminal laws of the country and even the Banking Act itself. One is baffled at the inaction of the Central Bank for not questioning this bank about this member of their board who has been accused of breaking laws at will.

It is hoped the Central bank under the new guard would look at these persons carefully and ensure that they are kept out of the boards of banks, at least for the sake of depositors, if not for good Corporate Governance.