-By LeN Investigative Desk
(Lanka-e-News - 24.Oct.2025, 6.45 AM) It is one of the most unspoken financial scandals in Sri Lanka’s recent history - a quiet, calculated haemorrhage of public wealth that has drained nearly $2 billion from the state’s coffers and left taxpayers footing the bill for the political excesses of the past two decades.
The story begins with the island’s two major state-owned banks - People’s Bank and Bank of Ceylon - once the financial backbone of the Sri Lankan economy, founded to protect agriculture, exports, and national liquidity. Today, they are weighed down by mountains of non-performing loans (NPLs) — debts extended to politically connected companies and individuals who never intended to pay them back.
At the heart of this financial rot, according to internal documents seen by Lanka-e-news and sources within the banking sector, lie the political authorisations and ministerial interferences made under the watch of Ravi Karunanayake, Ranil Wickremesinghe, and Mahinda Rajapaksa.
Between 2010 - 2015 - Rajapaksha Regime and 2015 to 2019 Yahapalanaya - and even earlier, during the Chandrika and Premadasa administrations - state banks were allegedly used as private piggy banks for political allies, family members, and shell companies. Senior bank officials were hand-picked by politicians, and loan committees were routinely bypassed or overruled.
Sources within the Ministry of Finance describe a pattern that reads less like banking policy and more like patronage. “Files were signed overnight,” one former senior banker told Lanka-e-news on condition of anonymity. “You couldn’t question it. If a minister’s letter came through, you just signed the disbursement order.”
Among the questionable authorisations were foreign loans - including credit facilities extended to one Maldivian company, six Indian companies, three Pakistani entities, and a Singapore-based firm - all approved without proper risk assessment, collateral, or repayment guarantees.
The total exposure from these loans, if interest is included, is estimated at nearly US$ 2 billion - a staggering figure for a nation whose public debt has already surpassed 120% of GDP.
People’s Bank and Bank of Ceylon were originally established to empower domestic industry and provide liquidity for agriculture and exports. Yet under successive governments, their loan portfolios began to read like a political who’s who.
Internal auditors have identified a series of loans between 2012 and 2019 that were approved without board minutes, feasibility studies, or security guarantees. Many of these borrowers - companies linked to former ministers, political financiers, and even media moguls - are now in default, while some have shifted assets abroad or re-registered under new corporate identities in Dubai, Singapore, and Malaysia.
Even as ordinary citizens are denied overdrafts of Rs. 1,000 due to “stringent banking compliance,” state banks were wiring millions of dollars to foreign hotel operators and politically exposed persons with little more than a ministerial letter as collateral.
“People’s Bank was never meant to be a party’s purse,” says Dr. Wijesinghe, a Colombo-based economist. “But what we saw during the last regimes was systemic capture - politicians using the bank as an instrument of reward and protection. It was crony capitalism under the guise of state policy.”
The process was deceptively simple.
1. A politically connected businessman would apply for a large loan through a shell company.
2. The loan committee would raise concerns or recommend partial approval.
3. Within days, a “directive” from the Ministry of Finance or the Prime Minister’s Office would arrive, instructing the bank to expedite or “reconsider favourably” the application.
4. Funds would be released, often in foreign currency, to overseas accounts.
5. The borrower would default, citing “market losses” or “foreign exchange volatility.”
The banks, now burdened by non-performing assets, would quietly absorb the losses. The Central Bank, under politically appointed governors, often looked the other way.
Sri Lanka’s taxpayers are now carrying the weight of these decisions.
An analysis by independent financial researchers suggests that the cumulative losses from politically backed NPLs at People’s Bank and Bank of Ceylon exceed Rs. 650 billion. To put that in context, that is twice the annual education budget and nearly the size of the IMF’s bailout tranche released in 2024.
These loans are not abstract numbers - they represent lost hospitals, cancelled public projects, and inflationary pressure that has eroded household incomes.
“This is not just about corruption,” says a senior official at the Auditor General’s Department. “It is about the betrayal of the public trust. When a small business is denied credit but a politician’s friend gets a $20 million loan with no collateral, that’s the breakdown of governance.”
Under both Wickremesinghe’s and Rajapaksa’s administrations, key banking appointments were made on political loyalty rather than competence. Board directors, chairmen, and credit committee heads were often former campaign donors or relatives of ruling party members.
In one case, a loan of US$ 250 million was approved for a Maldivian resort developer linked to a known political financier. The funds were transferred in three tranches, with no repayment to date. Another Rs. 10 billion facility to an Indian infrastructure firm was secured against land that did not exist — a fact later confirmed by a bank audit but buried under “confidential cabinet correspondence.”
Meanwhile, the same banks aggressively pursued small borrowers, farmers, and SMEs over minor arrears - a double standard that has fuelled public outrage.
Sri Lanka’s Central Bank and the Ministry of Finance had the authority - and the obligation - to prevent such recklessness. Yet during the periods in question, both were under the direct political control of the same figures now accused of interference.
Ravi Karunanayake, as Finance Minister, signed off on dozens of “priority sector” approvals that bypassed due diligence. Ranil Wickremesinghe, as Prime Minister and de facto economic czar, approved state bank board appointments. Mahinda Rajapaksa, both as President and later Finance Minister, personally intervened in large-scale disbursements tied to construction and defence contracts.
A confidential document seen by Lanka-e-news — originally prepared for the Committee on Public Enterprises (COPE) but never published — lists 34 loans between 2013 and 2018 that “did not comply with the State Banking Act or the Financial Regulations of the Treasury.”
Now, with the National People’s Power (NPP) government pledging to overhaul Sri Lanka’s financial institutions, the question is whether it has the courage - or the political will - to open this Pandora’s box.
The new administration has spoken boldly about recovering stolen assets and auditing state enterprises. Yet insiders warn that the non-performing loan scandal could become its most explosive challenge.
“There’s a reason no government has touched this,” says former COPE member Dr. Harsha. “If you start tracing these loans, you’ll find fingerprints from every party, every administration. It’s a bipartisan mess.”
Still, the public mood has shifted. With taxpayers reeling from inflation and IMF austerity, there is growing anger over why ordinary Sri Lankans must pay for the indulgences of political elites.
Experts say that the NPP government has the legal framework to act — if it dares.
Under the Proceeds of Crime Act and the Recovery of Loans by Banks (Special Provisions) Act, the state can seize assets of willful defaulters, freeze accounts, and even prosecute bank officials complicit in negligent disbursement.
However, enforcement has been weak. Political influence, legal delays, and protection networks have ensured that most high-profile defaulters remain untouched. Some are rumoured to have relocated to Dubai and Singapore, continuing to operate businesses while ignoring court summonses in Colombo.
For real accountability, the NPP would need to:
• Establish an Independent Banking Accountability Commission, free from political interference.
• Publish a White Paper detailing all non-performing loans exceeding Rs. 1 billion.
• Empower the Attorney General’s Department to initiate civil recovery proceedings.
• Bar former ministers and officials implicated in loan approvals from holding public office pending investigation.
The scandal’s international reach cannot be ignored. Some of the defaulters are foreign entities — including Maldivian and Indian corporations — that benefited from Sri Lankan credit lines.
Financial analysts question why a developing nation struggling with foreign reserves extended such loans to foreign private entities. “This isn’t development aid,” says Dr. Fernando, a former Treasury adviser. “This was reckless and possibly corrupt. These are funds that should have strengthened domestic industry, not financed resorts in the Maldives.”
International cooperation will be crucial if the NPP government pursues recovery, especially in tracing assets and accounts abroad.
Behind every number lies a citizen paying the price. As state banks struggle with liquidity, lending to farmers, students, and small traders has dried up. Higher interest rates, service cuts, and IMF-mandated restructuring have compounded the crisis.
While defaulters sip cocktails in Dubai, ordinary Sri Lankans face foreclosure, unemployment, and austerity.
For many, this scandal epitomises the country’s chronic problem — a culture of elite impunity, where political power shields economic crime.
The new NPP administration cannot afford to repeat history. If it genuinely represents the people, it must demand a full forensic audit of all non-performing loans granted by People’s Bank and Bank of Ceylon between 2005 and 2024.
It must summon before Parliament those who authorised these loans — including former finance ministers, bank chairmen, and directors — and hold public hearings.
Because every rupee lost is a rupee stolen from a child’s education, a farmer’s subsidy, a hospital bed.
Sri Lanka’s future cannot be mortgaged to the corruption of its past.
As Lanka-e-News has learned, a confidential set of documents — reportedly in the possession of Lanka-e-News — allegedly contains ministerial directives signed by Ravi Karunanayake and Ranil Wickremesinghe, authorising the release of large loan tranches to politically connected entities. If authenticated, these could become explosive evidence in any future inquiry.
The NPP government now stands at a crossroads. It can choose to investigate, recover, and reform - or it can fall into the same pattern of silence that has defined Sri Lankan politics for decades.
Taxpayers are watching.
And this time, they may not forgive another vanishing act.
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by (2025-10-24 01:22:54)
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