## Governance Risks in SL Banking Sector 📈

A critical assessment of the Sri Lankan banking landscape highlights a growing "governance crisis" where non-executive roles are often treated as prestige symbols rather than high-stakes responsibilities. • Systemic Vulnerabilities The sector faces risks from "ornamental" Boards lacking technical depth. Unlike other corporate sectors, banking relies on extreme leverage and public trust. Failures impact depositors, SMEs, and the real economy immediately. • Key Risk Indicators Current concerns focus on deteriorating credit quality and high risk concentrations. Specific scrutiny is directed at NDB Bank, where a significant buildup of receivables went unchallenged by Board members, external auditors (EY), and regulators (CBSL). • Accountability & Liability Non-executive status no longer offers insulation. Directors face: Civil & Criminal Exposure: Escalating global and local precedents for personal liability in negligence cases. Reputational Damage: Potential for prosecution and jail time following systemic collapses (e.g., the NDB saga). • Proposed Reforms To safeguard the financial services industry, the following are urged: Mandatory Literacy: Directors must pass banking literacy certifications before appointment. Strict Appointments: CBSL must shift from "convenience" to "competence" in vetting Board members. Audit Forensic Shift: Audit committees must move from procedural checks to forensic interrogation of balance sheets. _Note: Analysis based on current banking commentary and provisional sector observations._