Sri Lanka central bank on Monday said it had decided to dissolve Seylan Bank's SEYB.CM board of directors with immediate effect to maintain the stability of the financial system after a liquidity crunch arose from a credit card scam.
The decision came as a large number of Seylan's depositors withdrew their money, creating liquidity problems in the market, after its parent company Ceylinco Consolidated reported a credit card scam at one of its non-listed companies.
"The difficulties of Seylan Bank presented a potential danger to the stability of the financial system," the central bank said in statement.
As part of measures to stabilise the financial system the monetary board at the central bank has decided to discontinue the services of all current directors of Seylan Bank, it said.
The central bank said it had also decided to appoint the state-owned Bank of Ceylon (BOC) to carry on the business of Seylan Bank, while requesting BOC to appoint the new board of directors at Seylan Bank.
"This is an interim measure to help build depositor confidence," said Channa Amaratunga, director at the Colombo-based investment analysis firm CT Capital.
Ceylinco, a corporate leader with more than 300 companies in Sri Lanka, announced a credit card scam last week at the Golden Key Credit Card Company.
Ceylinco did not give a figure for the scam but analysts estimate its value to be around 26 billion rupees ($228.8 million).
On Saturday, the group said it had decided to sell its stake in Seylan to pay Golden Key depositors. The trading in the bank's shares were halted on Monday.
Shares in Seylan Bank are valued at around $6.04 million as of Monday, bourse data showed. ($1=113.65 rupees) (Reporting by Shihar Aneez; Editing by Jon Loades-Carter)
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