The Case Study - Seylan Bank

58Seylan Bank PLC Annual Report 2009Financial ReviewIt is no exaggeration to say that the year under reviewwas a memorable one for Seylan Bank. The collapseof the Golden Key Credit Company which was amember of the Ceylinco Group, of which the Banktoo was then a member, sent shock waves throughSri Lankan society as well as through the country’seconomy and financial services industry. Naturally,Seylan Bank was affected in several ways. Theconfidence of our depositors was temporarily shaken,though in fact the Bank was in a good position tomeet its obligations. Happily, confidence was restoredwhen the Central Bank of Sri Lanka (CBSL) steppedinto the picture, appointing the Bank of Ceylon asSeylan Bank’s managing agent and averting a run ondeposits. Subsequently, CBSL appointed a new boardof directors, empowered by its Monetary Board tomanage Seylan Bank independently.Despite this severe setback, and against abackground of global financial turmoil and economicrecession, Seylan Bank was able to regain investorand depositor confidence; our share price reboundedimmediately following the CBSL announcement, andthe Bank now meets or exceeds all the statutoryrequirements laid down by the regulator. Theseoutcomes represent a complete recovery from itstroubles for the Bank and a strong vote of confidencein its solidity and stability from those who mattermost: our shareholders and customers.Developments in the wider world were hardlyconducive to such a quick recovery. The first halfof 2009 was characterised by limited economicactivity as investors took a wait-and-see attitude inthe face of economic uncertainty and the escalationof the war. The clothing and export industries,fearing the consequences of losing the preferentialstatus granted to them by the EU under the GSP+exemption to WTO rules, were particularly affected.The banking sector also had its own specialdifficulties, among them a fall of nearly 10% ininterest rates, which had a cooling effect on bothlending and borrowing, as well as continued hightaxation. However, declining interest rates enabledSeylan Bank to earn substantial profits from itsinvestments in Government securities. Anotherbright spot in a generally gloomy picture was therecovery of tourism, which led a modest revival ofthe economy in the second half of 2009 and generalanticipation of better things to come in 2010.By far, the year’s most significant achievement wasrestoring the stability and liquidity of the Bank. Thiswas achieved through a number of means.Taking advantage of the buoyant stock market,Seylan Bank made a public issue of 54,290,000ordinary shares at Rs. 35/- per share on 22ndSeptember. The desirability of the issue was bolsteredby the aggregate 28% stake taken in Seylan Bank bytwo State institutions, the Bank of Ceylon and theSri Lanka Insurance Corporation. The success of theissue clearly demonstrated the recovery of investorconfidence in the Bank, being fully subscribed beforethe closing date. Market capitalisation of SeylanBank grew 288% in the course of the year, fromRs. 1.2 Bn. at the end of 2008 to Rs. 4.8 Bn. by theend of 2009. The Bank now has adequate capital tosupport the current business volumes as well as thegrowth plans and we do not foresee the need for anyfurther re-capitalisation effort in the near future.ProfitabilityIn retrospect, 2009 marked a commendable returnto form for Seylan Bank. Special mention deservesto be made of the Bank’s Treasury division, whichperformed extremely well in a year when the focusof many other departments was on Non-PerformingLoans recovery and consolidation.