The New Nation - Internet Edition

AFP, Colombo

Sri Lanka's central bank yesterday placed a troubled private bank in state custody, saying the move was aimed at preventing a collapse of the country's entire financial sector.The Central Bank of Sri Lanka exercised its regulatory powers to place the Seylan Bank in state custody and appointed state- owned Bank of Ceylon as the new manager of the private bank, a statement said.

"The difficulties of Seylan Bank Plc presented a potential danger to the stability of the (country's) financial system," the Central Bank of Sri Lanka said in a statement.

Officials said there was a run on Seylan bank deposits on Monday before the central bank stepped in.

A senior central bank source said that the government will initially manage the Seylan bank for a period of six months and then decide if it should return the operation to its owners, led by businessman Lalith Kotalawala.

Kotalawela and his Ceylinco group controls 23 percent of Seylan whose affiliate, the Golden Key Credit Card Company failed to honour its debts running into millions of dollars last week.In a notice over the weekend, Kotelawala said the Ceylinco group will sell off its controlling stake in the Seylan bank to settle the debts of the failed Golden Key Credit Card company.