Central Bank Governor protecting ‘unfit’ Lankaputhra Chairman: ACF

• CBSL Bank Supervision Dept ousts Lankaputhra Chairman; Mahendran recalls letter
• Bank Supervision Dept. letter cites lack of professional qualifications, violation of confidentiality regulations for Chairman’s ouster
• Anti-corruption watchdogs say Central Bank Governor acted arbitrarily to recall orders by regulatory department
• Governor’s term should not be renewed on 30 June: Anti-Corruption Front

By Dharisha Bastians

Anti-corruption activists have stepped up calls for the removal of Central Bank Governor Arjuna Mahendran, after a fresh scandal erupted this week alleging that the controversial Head of Sri Lanka’s financial regulator was protecting the Chairman of a State bank despite his ouster by the Bank Supervision Department of the Central Bank of Sri Lanka (CBSL).

The Anti-Corruption Front revealed Sunday (5) that Governor Mahendran had “recalled” a letter from the Bank Supervision Department of CBSL, informing Lankaputhra Development Bank Ltd. Chairman Lasantha Gunawardane that he was being removed for failing to meet stipulations in the Banking Act.

The Bank Supervision Department wrote to the General Manager/CEO of LDBL to inform him that Gunewardane could no longer serve in the position of Chairman of Lankaputhra Bank because he did not possess the stipulated professional qualifications required as per Section 3 (5) (IX) of the Banking Act, Direction No. 12 of 2007. The Department also informed the LDBL General Manager e in their letter dated 24 March 2016 that Gunewardane had violated confidentiality regulations. 

“Despite supervisory concerns raised at the meeting held on 12. 05. 2015 with Goonewardane and you on maintaining confidentiality of information, Goonewardane has failed and/or been negligent to maintain the duty of confidentiality in his capacity as Chairman LDBL in violation of Section 77 of the Banking Act.

However, subsequent to this, a letter has been issued by the Secretary of the Lankaputhra Bank, Gamini Pitipana to the Secretary to the Ministry of Public Enterprise Development, claiming that the Central Bank Governor had “recalled” the 24 March 2016 letter from the Bank Supervision Department, thereby allowing Gunewardane to remain in the post of Chairman.

ACF said the Governor has no power to recall a letter sent by the Department of Bank Supervision and claimed that recalling recommendations made following a technical assessment constitutes an authoritarian and arbitrary act.

ACF said an inquiry into this matter has revealed that the Department of Bank Supervision had never recalled the original letter issued on 24 March 2016.

The letter sent by the Bank Supervision Department, currently in Daily FT’s possession, has been minuted with an FYI to the Chairman of Lankaputhra Bank. Daily FT also learns from authoritative sources, that Governor Mahendran summoned the head of the Bank Supervision Department in late March 2016, a few days after the Department had issued the letter removing Gunewardane from his position.

Banking experts said the Bank Supervision Department of CBSL had found that LDBL Chairman Gunewardane had essentially failed the ‘fit and proper’ test crucial to ensuring the integrity of officials heading banking and financial institutions.

Governor Mahendran is already under a cloud over successive sovereign bond controversies that the opposition claims were never properly investigated. Appointed to complete former Central Bank Governor Ajith Nivaard Cabraal’s tenure in office following the presidential elections in January 2015, the decision on whether Mahendran will be reappointed for a further six-year term will be made by President Maithripala Sirisena in the coming weeks. Governor Mahendran’s current term ends on 30 June 2016.