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Steep dip from Rs. 74 mn. a year to Rs. 10.8 mn.
Seylan directors emoluments slashed after restructuring

Directors emoluments at the Seylan Bank in 2009 has dropped to Rs.10.8 million from Rs.74.7 million the previous year (according to reclassified figures) while group directors emoluments were down to Rs.26.2 million from Rs.110.9 million according to figures that have been "re-stated".

These figures are included in the recently released annual report of the Seylan Bank presented as ``The Case Study’’ in a book format with a preface titled "A story worth sharing."

However, emoluments of individual directors, then and now, have not been stated with the figures presented as a collective whole as is the case of most listed companies.

"Seylan Bank’s return to financial stability warrants a unique case study – with lessons for the entire financial services industry," it has been said as a sub title.

The bank’s new Executive Chairman, Mr. Eastman Narangoda, a former CEO of the National Savings Bank, has reported that in December 2008 Seylan had been confronted "by a sudden, unexpected crisis of public confidence" triggered by the highly publicized (Golden Key) financial collapse ``much closer to home.’’

As a result, many concerned customers rushed to withdraw their deposits creating a run on what was the country’s fifth largest bank and the ensuing period of instability threatened what Narangoda called the very future of a 20-year old, ``systemically important institution.’’

Well informed banking circles said that very high emoluments, even exceeding a million rupees a month for CEOs of big companies including banks, is not unusual in Sri Lanka along with perks including housing, a chauffeured company car and other perquisites.

According to the Seylan story, managing the success of what was widely advertised as "The Bank With a Heart" since its founding in 1987 had become increasingly difficult.

Originally named Seylan Trust Bank Limited, it was designated a licensed commercial bank and incorporated as a public company with a broad base of shareholders. From its founding the new institution was a part of the Ceylinco group of companies, a major Sri Lankan conglomerate operating in a wide range of industries.

The goal of the Founder Chairman, Dr. Lalith Kotelawala, was to offer retail customers a more welcoming service-oriented alternative and a banking culture that was generally perceived to be formal and regimented, even a bit austere.

"From the outset, Seylan Bank presented itself as a flexible, customer-friendly choice, summing-up its promise in a service motto that soon caught the attention of prospective customers: `The Bank with a Heart’," Chapter One of Seylan’s Case Study said.

It went on to say – Seylan Bank quickly differentiated itself in the Sri Lankan market-place with a range of innovative services, including:

* Extended weekday banking hours, as well as Saturday service

* 1% bonus interest on minimum average balances for savings accounts

* Special high-interest savings accounts with contracted monthly deposits

* 5% ‘thank-you’ bonuses on interest reinvested as fixed deposits

* Personal Assistance Loans for cus-tomers with limited credit opportunities

* Cash-card access to non-resident for-eign currency accounts (often used by Sri Lankan expatriates to transfer funds to their dependents).

In 1992, the bank introduced Sri Lanka’s first home grown credit card – Seylan Card – in association with Golden Key Credit Card Company Limited. Three years later, Seylan Bank joined the Visa International Network and over the next decade became the largest issuer of Visa Cards in Sri Lanka. A network of automated teller machines was implemented beginning in 1995.

Seylan had demonstrated rapidly profitable growth but over-expansion had carried a price.

"In the view of some stakeholders, the staggering growth achieved by Seylan Bank had led to a classic case of overtrading.

"Banking is by definition a capital-intensive business. However, in the case of Seylan Bank, aggressive expansion, both in terms of business volumes as well as physical infrastructure – opening branches, expanding the ATM network, building new premises, etc. had exerted tremendous pressure on the limited amount of capital available.

"Within five years of the bank’s founding, its gearing ratio (the degree of leverage required to finance operations, calculated as total assets divided by total shareholders’ funds) shot up past 29 times. This pointed to serious problems ahead."

Dealing with the Ceylinco connection, The Case Study says that Ceylon Insurance Company founded in 1939 then had just three small subsidiaries and a total of 100 employees when Mr. Kotelawala took on the Chief Executive role in the 1960s.

"Under his leadership, it grew into one of Sri Lanka’s major corporations, employing over 30,000 people and encompassing more than 250 affiliated companies.

"Some of those companies were publicly held and listed on the Colombo Stock Exchange; most, however, were owned by other companies within the group or by the Chairman and various Ceylinco directors."

Ceylinco was a major shareholder in Seylan Bank from its founding with an ownership stake averaging approximately 24% through the end of 2008 and in addition the two entities entered into a diverse range of business relationships.

The Case Study makes the point that: "In short, it was widely agreed that Seylan Bank (a) had taken on excessive and unjustified lending exposures with regard to many companies within the Ceylinco group, and (b) had signed contracts deemed unfavourable to the bank’s own interests in order to obtain services from, or deliver services to, a large number of Ceylinco companies."

Board of Directors

1. Mr. Eastman Narangoda (Executive Chairman)

2. Mr. R. Nadarajah (Executive Director)

3. Mr. Nihal Jayamanne (President’s Counsel, Director)

4. Mr. Lalith Withana (Director)

5. Rear Admiral (Rtd.) B. A. J. G. Peiris (Director)

6. Mr. Pradeep G. S. Kariyawasam (Director)

7. Dr. Nalaka H. Godahewa (Director)

8. Mr. Ajith L. Devasurendra (Director)

9. Mr. Ishara C. Nanayakkara (Director)

10. Mr. Samantha P. S. Ranatunga (Director)

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