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DateLine Tuesday, 30 December 2008

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CB bails out Seylan

Safety of depositors assured:

“The purpose of this move was to ensure the stability of the Banking system of the country and to ensure the safety of depositors as Seylan Bank PLC presented a potential danger to the system,” a Central Bank source said.

The Central Bank’s Monetary Board yesterday discontinued the services of the Board of Directors of Seylan Bank and appointed the Bank of Ceylon to oversee its operations.

“The purpose of this move was to ensure the stability of the Banking system of the country and to ensure the safety of depositors as Seylan Bank PLC presented a potential danger to the system,” a Central Bank source said.

However, the Monetary Board of the Central Bank stressed to the public that they should continue with their normal financial transactions with Seylan Bank assuring the public of the safety of deposits and the stability of the financial system. This decision was taken by the Monetary Board in view of the recent events in the Ceylinco Group and the difficulties being encountered by Seylan Bank with regard to deposit withdrawals and ensuing liquidity problems.

Therefore, the Monetary Board is of the view that immediate measures are required to be taken to stabilise the financial system.

In that context, the Monetary Board has determined to act under Section 30(1) of the Monetary Law Act No.58 of 1949, with immediate effect.

Meanwhile, an official of the Bank of Ceylon said that they would appoint a Board to oversee the operations of Seylan.

“We have been requested to continue with the services of the present CEO of Seylan and all current employees of Seylan Bank PLC, without any interruption,” the official said.

The Ceylinco Group has already announced that it was planning a sell out of the bank to repay depositors of Ceylinco Golden Key Credit Card Company, which ran into a liquidity crisis. When contacted, a senior banker said that this is a step taken in the right direction to ensure the smooth flow of the banking system. “We have observed that subsequent to the Ceylinco Group Chairman’s statement that it was to divest Seylan Bank stakes to settle depositors of the Golden Key Credit Card Company, many depositors were withdrawing money,” he said.

This senior banker said that if this trend continued the Bank would face a crisis and with the intervention of the Central Bank it is now being stalled. “If 30 per cent of deposits in any bank are withdrawn in one week any bank would collapse and it would result in a chain of failures of the entire banking system,” he said.

He said that what is important in a bank is the public perception of the stability of the bank. Seylan Bank PLC will be open for usual business with customers today (30).

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