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Governor: "We can deal with any crisis of confidence’’
Financial system will be kept stable, assures Central Bank

Central Bank Governor Ajit Nivard Cabraal yesterday assured that the authorities will take all possible steps to avert any crisis of confidence in the financial services sector following the Golden Key Credit Card Company’s problems which led to Mr. Lalith Kotelawala announcing that he would "divest the investment" in the Seylan Bank.

The Central Bank statement stressed that the Monetary Law Act No.58 of 1949 provides extensive powers to the Monetary Board of Sri Lanka to intervene in various ways where the stability of the financial system is at any risk at any time.

"The public could rest assured that the Monetary Board will act in accordance with its powers in the event there is any imminent risk to any licensed or registered financial institution," it said.

Well informed sources yesterday speculated on the possibility of a strong bank taking control of Seylan. There was however no confirmation on whether a hard decision on this has been taken although a senior Central Bank official said that the steps that would follow are likely to be announced during the course of this week.

The Governor said that although no crisis of confidence in the financial sector had arisen up to yesterday, "we can deal with it if it does arise."

Banking sources said that despite the uncertainty there was no run on deposits at the Seylan Bank on Friday although movements out of accounts were more than usual.

Cabraal had a meeting yesterday with senior Central Bank officials on the emerging situation. He said that final decisions will be taken in consultation with the Finance Minister who is the President.

In its statement yesterday, the Central Bank quoted Kotelawala’s statement of December 22 when he had said in an advertisement that a crisis had arisen at Golden Key where it has been "involved in a major credit card scam."

The Central Bank said that although Golden Key was not a company regulated or supervised by the Central Bank, depositors of some of the regulated financial institutions within the Ceylinco Group "have shown signs of stress" according to reports received by the bank.

It said that this was further confirmed by Kotelawala’s statement yesterday where he had said that problems at Golden Key "affect the reputation of the Ceylinco Group …"

"This emerging situation naturally causes concerns within the financial system, since there are two licensed banks and several registered financial institutions popularly associated with the Ceylinco Group of Companies. It is in that context that the Central Bank is issuing this media statement,"

the Central Bank said.

It explained that in Sri Lanka licensed banks, registered financial and leasing companies and primary dealers are registered with the Central Bank and they are required to meet certain stringent regulations on capital, liquidity, asset quality, risk concentration, governance practices, etc.

These regulations are designed to protect the depositors and creditors of licensed banks and registered financial institutions in their dealings with such institutions," the statement said.

"Accordingly, the Central Bank informs the public that they should continue with their normal financial transactions with licensed and registered financial institutions."

The Seylan Bank which was founded 20 years ago and has over 100 branches countrywide was described by Kotelawala as the third largest private sector bank in Sri Lanka.

Two senior private bankers said that they have not been approached by anybody about taking over the Seylan Bank although there was a report on Lanka Business Online saying that discussions are underway to find a local or foreign bank to take over Seylan.

Analysts pointed out that commercial banking licenses are no longer issued and the minimum capital required by a bank is around Rs.2 billion.

Fitch rated Seylan as the fifth largest licensed commercial bank in the country accounting for 5.7% of the banking systems assets at the end of the financial year 2007.

The Ceylinco Group holds 23% of the bank’s voting equity with several Employee Share Ownership Trusts collectively holding another 27%.

Its issued voting shares of approximately 43.6 million would be worth Rs.686 million at the Rs.15.75 price at which the share closed on the last trading day. However, analysts point out that a controlling stake would fetch a higher price than that at which the share last closed.

According to its September financials, Seylan’s deposits totaled Rs.119 billion and assets Rs.166 billion. Total performing loans and advances were Rs.93.7 billion.

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