One in ten cheques issued in Sri Lanka bounces and account holders are writing dud cheques with impunity despite it being a criminal offense, a top central banker said.

Central Bank deputy governor Ranee Jayamaha says nine percent of the 250,000 cheques, especially in the Colombo area sent for clearing are returned each day.

"Fifty percent of that is due to lack of funds," Jayamaha told participants of the LawAsiaICT2008 conference in Colombo which focusing on the application of laws governing electronic commerce in the Asian region.

"Banks are plagued with this problem every single day."

Jayamaha says account holders are writing cheques without funds despite it being a criminal offense.

In Sri Lanka cheques are cleared electronically mostly on the same day and is the most widely used payment mechanism after cash. Banks in Sri Lanka are regulated by the Central Bank.

To counter the problem banks have themselves decided to suspend the accounts of customers who write more than three dud cheques.

However banks had then told the central bank that it could not be implemented as customers then use it as an excuse not to pay back loans.

"Then the banks themselves report to us saying that they have difficulties because these customers who write dud cheques also have been given various credit and loan facilities," Jayamaha said.

"If their accounts are closed they get the upper hand and they do not pay their dues to the banks.

"So that will increase the non performing component of the banks and that causes lot of problems to the regulator as well."