The Sri Lankan government took control of a private bank saddled with bad debt declaring that the action was required to ‘maintain the stability of the financial system’.
Seylan Bank, part owned by Ceylinco Consolidated, faced a liquidity crunch as depositors started withdrawing their money following the revelation of a credit card scandal at non-listed Golden Key Credit Card Company also owned by Ceylinco Consolidated.
Analysts estimate the amount involved to be around 26 billion rupees ($228.8 million).
The Central Bank of Sri Lanka exercised its regulatory powers to dissolve Seylan Bank's board of directors with immediate effect and appointed the government-owned Bank of Ceylon to continue business operations at the troubled Bank.
"The difficulties of Seylan Bank PLC presented a potential danger to the stability of the financial system," a statement released by the Central Bank said.
Commenting on the bank bail-out, President Mahinda Rajapakse yesterday assured the nation that the Government would take all possible steps to stabilise the nation’s economy whenever there occurred a financial crisis.
“That was a step we have already proved by intervening in the crisis faced by the Seylan Bank,” the Rajapakse said speaking at the 50th anniversary celebrations of the Sri Lanka Transport Board (SLTB).
Although the Sri Lankan Monetary Board has assured the safety of the deposits with Seylan Bank, according to latest reports, the troubled bank has stopped all withdrawals and is advising customers who have small and medium scale deposits as fixed savings that they could withdraw their deposits, only if they had matured and not otherwise.
One customer who has two fixed deposits with a suburban Seylan Bank branch worth over Rs. 2 million and wanted one deposit withdrawn was told he could not, as it does not mature till June 2009, reported Lanka Everything website.
"I am not a Golden Key depositor. I have my EPF money in the bank." said this customer who had retired as a Management level employee from a private company, 3 years ago.
"I had two fixed deposits with one to be broken up when I needed money." he said in anonymity.
He said it is totally illegal and an injustice to deny people like him to withdraw their own money, when they most needed them.
"I was not asking a loan. I went to have my own money." he said with a tinge of dejection and anger.
"I wish I could sue them for this. Its defaulting." he said, adding there were many like him who were turned back in desperation.
Another customer said he was offered only a fraction of his deposit, "as a personal help" by a Seylan bank staffer, reported Lanka Everything.
"This is stupid" he said, adding that he doesn't need personal help to withdraw his own money.
Seylan bank customers who spoke to media said they have not been given any guarantee or a time frame as to when they could withdraw their monies in deposit with Seylan bank, added Lanka Everything.
Lalith Kotelawala, chairman of Ceylinco Group has announced that he would sell his shares to repay investors in failed Golden Key Credit Card Company.
Kotalawela did not say how much shares he would divest or what amount he is expecting to raise from selling his shares.
But the bank's CEO Ajitha Pasqual was quoted in a newspaper saying "it could be 23-25 percent or even more."
The collapse of the Golden Key Company and the run on Seylan deposits is seen as the first sign of international financial woes hitting economy of Sri Lanka.
