Commercial Bank of Ceylon PLC (ComBank) will, subject to the final determination of court, hold a deposit of USD 15 million deposited with it by the People’s Bank on an oil hedging contract expiring on August 31, 2009, the bank has said in a Stock Exchange filing.

The People’s Bank obtained an enjoining order from the Commercial High Court on December 29 restraining the Commercial Bank from appropriating and/or setting off this sum of USD 15 million which the Commercial Bank is holding on account of the hedging contract.

ComBank said in its filing to the Colombo Stock Exchange (CSE) that the People’s Bank had failed to honour its November and December 2008 payments on this contract amounting to slightly over USD 3.9 million.

"If People’s Bank continues to fail to make payments under this contract and if the WTI crude oil price remains at the present level of US$ 35 per barrel, our additional credit exposure would be approximately USD 21.6 million for the balance period of the contract," ComBank said.

"If set off is permitted by the court, the balance counterparty credit exposure by People’s Bank will be USD 10,525,850/= (Rupees 1,199,946,900/= at an exchange rate of Rs.114/=),’’ the filing said.

ComBank said that it has obtained all legal documentation to support the contract and will take necessary action to "safeguard the interest of the bank and vigorously defend the action taken by the People’s Bank."