Longitudinal Study of Seylan Bank, Sri Lanka from 1996 to 2008

Abstract

Seylan Bank was established in 1986 and became the forth private listed commercial bank in Sri Lanka in 1988. With a special permission from the central bank, the promoters of the bank, the Ceylinco Group of companies, had 18% of share ownership. The other two majour shareholders were Rosy Blue Finance S.A. (10%) which was believed to have close links with the Ceylinco Group (CI-Ratings, 1996)and the National Development Bank (8%). The Banking Act allows only 10% of shareholding by a person or persons who are acting in concert (The Banking Act, 1993). The Security Exchange Act in Sri Lanka restricts holding shares by any single shareholder to 5% in a company listed in the Colombo Stock Exchange(The Securities Exchange Act, 1987). Therefore, Ceylinco group strategically acquired the controlling power of the bank through several employee ownership trusts in 2001. The Seylan bank provided credit facilities to those trusts and they started buying shares from the market gradually up to 5% of the total shares. By 2005 these employee ownership trusts collectively had a 27% of the ownership of the Seylan bank and therefore, Ceylinco group comfortably had more than 55% of the ownership(Fitch-Ratings, 2005a). The banking act prohibits lend money to purchase its own shares but the loophole explored by the Seylan bank board of directors was that, if the beneficiary is the employees of the bank such purchases are exempt from this requirement.