BANKING SECTOR

FINANCIAL DISCIPLINE 

THE GOVERNANCE ECOSYSTEM

Ramesh Jayasekara stresses that governance ecosystems have to be watertight 

The banking sector entered the new year on firmer ground as the economic recovery and renewed private sector activity restored momentum. However, beneath the favourable numbers lies a sector still navigating vulnerability. 

External geopolitical shocks, evolving customer expectations and the long shadow of the 2022 economic crisis continue to shape strategic thinking across the sector. 

Ramesh Jayasekara believes the current phase is less about celebration and more about consolidation: “The past two years delivered stable economic growth and momentum for the banking sector. Coming into 2026, expectations were positive. The Middle East conflict however, created uncertainty; but even with that, I still believe Sri Lanka can achieve GDP growth between three and four percent.”

Global tensions particularly surrounding the Middle East conflict remain a concern for the country due to its dependence on imports, tourism and remittance inflows. 

“I don’t see a return to heavy escalation in the Middle East. Businesses and people adapt. Operating models change and economies gradually adjust to new realities,” he muses.

That adaptability, he argues, has already become a defining characteristic of the private sector, following consecutive crises.

BEYOND GROWTH Recent incidents involving governance failures within parts of the banking sector triggered renewed scrutiny over internal controls, fraud detection systems and institutional oversight. 

Jayasekara believes the conversation must move beyond headline profitability, adding that “people often focus on growth, profitability and balance sheet strength. But governance frameworks, internal controls and risk management structures are equally important when assessing the health of a bank.”

“There is room to strengthen fraud detection using technology. If unusual transaction patterns emerge – whether through timing, transaction size or frequency – systems should be able to flag them immediately. AI can support banks in this area,” he suggests.

Jayasekara points to transaction monitoring and behavioural analysis as areas where local banks can further modernise.

At the same time, he expects the regulator to tighten frameworks once ongoing forensic investigations conclude. The Central Bank of Sri Lanka has directed banks to conduct reviews through internal or external audit teams.

“Governance can no longer sit separately from growth strategies. You cannot look at the profit and loss statement and the balance sheet alone. You have to assess the entire governance ecosystem around a bank,” he emphasises.

DIGITAL BANKING If there is one area where the sector has transformed decisively over the past few years, it’s digital banking. 

Transaction migration has accelerated even faster. The implications extend beyond customer convenience. Digitalisation is fundamentally altering cost structures, service delivery and competitive positioning.

He explains: “There is a strong emphasis across the sector on improving convenience, speeding up processes and bringing products to the market faster. Traditional banking services are also being reengineered around digital functionality.”

“Banks that innovate faster and simplify customer journeys will have a significant advantage,” Jayasekara declares. 

CREDIT INTELLIGENCE AI is no longer viewed as an experimental layer within banking operations.

“We see artificial intelligence creating value across three major pillars. One is credit decisions; AI can help banks make faster and better lending decisions. Secondly, risk management including fraud detection, anti-money laundering (AML) and customer due diligence (CDD) monitoring. And the third is customer engagement through better cross-selling and identifying which products suit customers’ behaviours,” he notes.

Sri Lankan banks are also moving towards faster lending decisions through integrated AI systems.

“There is already a movement towards instant credit assessments through integrations with systems such as the Credit Information Bureau (CRIB). The direction is towards offering customers faster access to credit through digital platforms,” he adds.

While many discussions around AI focus on disruption, Jayasekara views it more as a decision support and efficiency tool: “There is a lot we can do using artificial intelligence rather than relying purely on traditional systems and manual intervention.”

CREDIT GROWTH Recovery in credit appetite has been one of the clearest indicators of improving business confidence.

Corporate and retail lending, together with SME activity, have shown signs of revival following the sharp contraction experienced during the crisis years. Banks, he says, played a pivotal role in providing support and preventing widespread collapses within the SME sector. The improvement is now visible in asset quality indicators as well.

Still, external risks remain…

“If geopolitical tensions escalate, naturally there can be pressure on credit quality. But under current conditions, I expect non-performing loan (NPL) levels to remain broadly stable through the year,” he asserts.

FINANCIAL INCLUSION Jayasekara believes that Sri Lanka has already achieved relatively high levels of banking penetration compared to many markets in the region.

He claims: “There are around 20 million debit cards and roughly two million credit cards in circulation. Relative to the adult population, this indicates a fairly high level of connection to the banking system.”

Government welfare digitisation has further accelerated account ownership.

“Today, even welfare payments are credited directly into accounts rather than distributed manually. So most adults should already have some form of banking relationship,” he argues.

The next challenge however, lies in expanding access to formal credit.

“There is significant opportunity to use proxy indicators such as electricity bills or telephone payments, to assess repayment behaviour and improve access to micro lending,” he adds. Alternative data could help unlock credit access for segments traditionally excluded from formal banking systems.

There is a lot we can do using artificial intelligence rather than relying purely on traditional systems and manual intervention 

He explains: “If you look at Sri Lanka, we are almost fully electrified. Therefore, there are multiple forms of transactional data available, which can eventually support broader credit access.”

FISCAL DISCIPLINE Although macroeconomic indicators have improved notably, Jayasekara cautions against complacency, adding that “for the first time in a long time, Sri Lanka has recorded consecutive years of twin surpluses. Historically, the island has struggled with twin deficits.”

Yet, structural vulnerabilities remain – including the IMF programme, high debt levels and the lack of sufficient buffers to absorb major external shocks.

He elaborates: “Reserve accumulation and fiscal discipline must remain priorities. Building reserves and maintaining fiscal discipline are extremely important as Sri Lanka remains highly exposed to external events, whether through oil prices, tourism, remittances or global trade disruptions.”

Jayasekara asserts that the country cannot afford policy inconsistency or short-term thinking: “We need to stay the course and strengthen the economy steadily over time.”

The interviewee is the Chief Executive Officer and a Director of Seylan Bank.