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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2252

Unethical practices loom large among allegations: Death knell for Seylan Merchant Bank too

By Ravi Laduwahetty in Sri Lanka

Colombo, 08 March, ( Hot on the heels of Seylan Bank being used to redeem crisis- ridden Golden Key Credit Card Co Ltd , crisis after crisis has hit Seylan Merchant Bank, another member of the giant Ceylinco Group.

A cloud of controversy has loomed over Seylan Merchant Bank where a plethora of unanswered questions exist and rife speculation also exists as to whether Seylan Merchant Bank will be the second financial institution within the Ceylinco Group to be bailed out by the Central Bank and the Government for the sake of the depositors and investors within a few weeks.

Banking sources also confirmed that the Central Bank will be asked to step in the wake of the Non Banking Supervision of the CBSL having started offshore investigations.

Eyebrows are being raised and questions are being asked in banking circles as to how a Merchant Bank which boasts of mobilizing billions in deposits as a symbol of public faith in the Group, has reported a mere Rs. 3.5 million profit in the six months results published recently

How is a financial institution that has mobilized billions of deposits end up with almost a negative return whilst continuing to accept public funds at highest interest rates, they queried.

They expect the public and the authorities to be enlightened soon about the real situation of Seylan Merchant Bank and Seylan Merchant Leasing as the Central Bank Non Bank Supervision has reportedly started their off-site investigations.

These sources revealed that investigations will be carried out not only by the Central Bank but also by Inland Revenue, Labour Department and the CID as the SMB group has been violating laws in their exploitation of public and public funds in their quest for profits.

They said that it was quite interesting to learn how the SMB group hides failures by changing the mode of operations. It is alleged that when Seylan Merchant Bank is in trouble with non performing loans, violation of rules or low profitability all sales efforts are then diverted to Seylan Merchant Leasing with a new outlook and vice versa.

Lenders such as Seylan Bank too are in trouble. It is reported that Seylan Bank has been allowing a SMB subsidiary to import motorcycles and automobiles violating CBSL guidelines such as single borrower limits and margin requirements.

SMB has surrendered its fixed deposits collected through public money to meet margin requirements of Seylan Bank in opening Letters of Credit for Ceylinco Automobiles.

It is also alleged that the staff is also in a dilemma as they are threatened by a top Director to conceal information.

SMB Kenanaga a joint venture with an overseas partner in Indonesia formerly known as CAPM has done those investment proposals for Golden Key. The inexperienced Consultant hired by for this purpose has subsequently left the company and reported to join an overseas investment firm in Singapore.

Sources reveal that the foreign collaborators have already initiated investigations through the Indonesian Embassy in Colombo is to seek help of Interpol to safeguard their interests as they cannot be a party, said what was described to be Asia’s biggest fraud.

These sources said that it will be interesting to learn how the CBSL will handle the illegal loans granted by Seylan Merchant Bank and Seylan Merchant Leasing Ltd to their automobile company Ceylinco Automobiles Ltd which has been running at a loss for three years with unrealistic business plans. CAL has no audited accounts.

It is shocking to learn that Seylan Merchant Leasing –despite their poor and biased credit evaluations done to sell sister company products- charges exorbitantly high interest rates of 30% to 40% p.a.. In addition, when a facility is in arrears for three months a sum of Rs 35,000- is also charged for legal expenses even if the original facility is a mere sum of Rs 65,000-.

Depositors are in a dilemma as withdrawals have been restricted. Some influential people have forcibly withdrawn their monies and the innocents will have to obtain the approval of the General Manager even for a withdrawal of a few thousand rupees.

However, a SMB company spokesman, when contacted, said that it was not in danger.

Seylan Merchant Bank has liquidity problems – CBSL

Central Bank Director of the Non Banking Supervision S.S. Ratnayake when contacted by Asian Tribune, on the issues governing Seylan Merchant Bank, said that there were liquidity issues governing SMB and added that they were being addressed carefully and professionally.

Ratnayake also said that any financial intermediary cannot meet the demands for the funds of all the depositors and creditors’ demand for funds at any given and particular time.

He said that this was due to financial intermediaries mobilizing being unable to meet the demands for all the funds of the depositors and the creditors’ demand for funds at any particular time. This is because financial intermediaries mobilize funds to various other parties, he explained.

“If there is a decrease in the normal pattern of the inflow of funds, then it will create liquidity problems for any financial intermediary, disregarding its financial strength. This can happen at a time when there is a deposit outflow, in such a situation all the stakeholders and the financial intermediaries should behave in a responsible manner,” he said.

Seylan Merchant Bank Deputy Chairman says: “We are transparent”

Seylan Merchant Bank Deputy Chairman Rohan Senanayake, when confronted by Asian Tribune with the issues, said that the company’s was transparent and everything was there for all to see.

He said that the company’s operations were monitored by the Central Bank and that the financial statements were audited by KPMG Ford Rhodes Thornton & Co.

However, when asked why and how a company mobilising deposits to the value of billions could have reported a measly Rs. 3.5 million as profits, he said that turnover and profits was a matter of relativity!!

- Asian Tribune -

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