SRI LANKA SEYLAN BANK CEYLINCO G O L D E N K E Y C R E D I T C A R D C O M PA N Y

BOC to Handhold Seylan Bank

Seylan Bank,
T he year 2008 would have ended on a negative
note for the financial industry in Sri Lanka if
not for the timely intervention of Sri Lankan financial
authority, the Central Bank of Sri Lanka (CBSL), which
came to know about the crisis only when anxious
depositors told him that the cheques they had
received from the company by way of return
of deposits had been bouncing. The company
which is part came to the rescue of Seylan Bank by vesting the sources also said while officially the company
management of the bank with the Bank of Ceylon and books showed a deposit base of Rs 5.9 billion, it
of the Ceylinco appointing a board of directors. CBSL decided on this was actually around Rs 26 billion. The company
course of action after the Seylan Bank was in difficulty could not meet the withdrawal demands from
Group, faced following the decision by Ceylinco Group chairman some of its large investors. The company’s
a fund crisis Lalith Kotelawala to divest Ceylinco shares in Seylan estimated depositor base is 10,000 customers.
Bank to settle the depositors of Golden Key Credit
recently but the Card Company, which faced a financial crisis due to INVESTIGATION
mismanagement of funds and large withdrawals from At an internal inquiry, the company’s CEO Khavan
Central Bank Seylan Bank. The customers had lost confidence in the Perera denied any financial misappropriation,
intervened Ceylinco Group following the closure of Golden Key personal gains or that the company had been
Credit Card Company. maintaining two sets of books. According to
and entrusted Central Bank Governor Ajith Nivard Cabraal said that sources, he being a director of 40 companies of the
the customers of the bank should continue to transact Ceylinco Group, had been transferring funds from
the bank’s
with the bank and need not fear as CBSL has taken steps the company to other group companies. An internal
management to ensure stability of the bank. He added that CBSL audit into the functions of the company launched by
fully supported the new partnership and will ensure Seylan Bank found that no proper audited accounts
to Bank of that normalcy is restored speedily. The employees of have been maintained by the company. The inquiry
Ceylon. Umani Seylan Bank will continue to serve the bank under now will question the auditors responsible for the
its CEO Ajita Pasqual. Former general manager of account, Messrs Laurie Muthukrishna & Company.
Siriwardena National Savings Bank, Eastman Narangoda, was The CID has already begun a probe into the crisis.
appointed as the chairman of Seylan Bank PLC while Detectives said that CEO Khavan Perera gave a
traces the Lalith Withana, Nihal Jayamanna PC and Neomal voluntary statement to the CID admitting that there
development: Gunawardena were appointed as directors. was some mismanagement of funds.
The company had invested in several ventures
SEQUENCE OF EVENTS some of which are not profitable in the current
The sequence of events unfolded with an economic climate. It remained open through the
unexpected move by Kotelawala saying that he will week for depositors to collect forms to get the details
divest the group’s stake in the bank (about 23-24% or of their investment as there were problems with the
more). Pasqual said there were two parties interested current data base. Banking analysts said that despite the
in buying the stock and one of them was a foreigner. assurance given by Kotelawala, the company would find
Kotelawala needed money to settle claims of it difficult to meet all the liabilities as the amount due to
depositors of Golden Key Credit Card Company, the depositors is huge. The most profitable company in
which had accepted deposits and issued credit cards. the group is Ceylinco Insurance, but since this is a listed
The deposits attracted high rates of interest. There company in the Colombo Stock Exchange, the group
were also allegations of mismanagement of the cannot withdraw money without shareholders’ approval.
company and liquidity crisis forced the company to Though Kotelawala owns just over 1% of Seylan Bank
close its doors in late December. There were rumors shares, his companies, through direct, indirect and cross
in the market about the status of the company and holdings, own a sizable stake in the bank. His move to divest
depositors, taking a cue from the Sakvithi scandal the group’s stake came amidst concerns from CBSL about the
company, began large scale withdrawal of funds and impact on deposits at the Seylan Bank, which was founded
in a short period of time, the company was not in two decades ago by Kotelawala. According to banking sources,
a position to meet the fund demands. Golden Key though there is interest shown by banks to buy the shares of
Credit Card Company is not a finance company, but Seylan Bank, the CBSL will not process the applications until
it collects deposits and issues credit cards. the internal issues are sorted out.
Kotelawala, according to Ceylinco Group sources,

18 BANKING FRONTIERS JANUARY 2009

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