NDB fraud probe reveals bigger transaction trail than first disclosed

• Fraud tally climbs as forensic review identifies Rs.13.58bn in suspicious transfers
• NDB stressed interim report remains confidential and that only limited findings could be disclosed at this stage

Nearly three months after National Development Bank (NDB) disclosed what became one of the largest fraud cases to hit a listed Sri Lankan bank, a forensic review has identified the suspicious transaction amount to be higher than what was initially disclosed.

In a filling to the Colombo Stock Exchange on Friday, NDB said Deloitte Touche Tohmatsu India LLP, which was appointed to conduct an independent forensic review, had submitted an interim report identifying suspicious transactions amounting to Rs.13.58 billion.

NDB stressed the interim report remains confidential and that only limited findings could be disclosed at this stage. The bank added that the observations contained in the report are preliminary and indicative, while the forensic review remains ongoing.

The latest figure is marginally higher than the Rs.13.2 billion exposure disclosed by the bank in April. It is also the first time an external investigator has attached a value to the transactions under examination.

The case first emerged in early April when NDB informed the market that irregular transactions linked to a staff member had resulted in substantial losses. Within days, the estimated exposure ballooned from hundreds of millions of rupees to more than Rs.13 billion, prompting heightened regulatory scrutiny and raising questions over internal controls at one of the country’s systemically important banks.

The oversight of NDB rests with its board of directors, chaired by Sriyan Cooray and comprising Bernard Sinniah, Sujeewa Mudalige, Kushan D’Alwis, Kasturi Chellaraja, Shweta Pandey, Hasitha Premaratne, Sanjaya Mohottala and Shanil Fernando. Following the scam disclosure, Fernando, Independent Non-Executive Director, resigned from the board. The bank moved to commission an independent forensic investigation and strengthen internal review mechanisms. 

The regulators, investors and market participants are continuing to seek answers on how such a large fraud could have remained undetected.

NDB has repeatedly maintained that the incident does not threaten the bank’s financial stability, citing strong capital adequacy levels and liquidity buffers. The bank has also taken provisions against the loss and assured the shareholders that the normal banking operations remain unaffected.

Efforts are underway to trace and analyse the transactions linked to the case, with the final scope of the fraud yet to be conclusively determined. Ongoing is broader investigations into the allegations that some of the funds were routed through a network of entities and transferred overseas, under the guise of import-related transactions, claims that have also been raised in Parliament.

NDB said it would make further disclosures as appropriate as the investigation progresses.