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Sun, 26 October 2014 15:56:59
Sri Lanka Golden Key customers seek information
23 Dec, 2008 23:09:01
Dec 23, 2008 (LBO) - Thousands of anxious customers of Sri Lanka's Golden Key Credit Card Company flocked to a conference hall in Colombo to meet Ceylinco group chairman Lalith Kotelawala, and get information on the status of their funds.
Golden Key asked customers to come to the BMICH conference hall in Sri Lanka's capital Colombo Tuesday, to meet group chairman Lalith Kotelawala, after he said the firm had been mis-managed and the its chief executive, Khavan Perera, had resigned.

The company had arranged seating for a few hundred customers at a meeting room, but thousands of customers poured into the conference hall premises, spilling on to the lawns, and causing a traffic jam on the approach road.

Customers who were inside the meeting room said they were told that interest on their money would be paid for January, and the firm would be audited and payments would be re-structured.

A visibly shaken Kotelawala later emerged to address those outside. Speaking in Sinhala, he promised to ensure that interest and payments would be made. He was escorted by security personnel as customers thronged around him.

Many hundreds of customers however, refused to leave the premises and demanded their money and interest back.

Later a company spokesperson emerged to say that Kotelawala will issue a detailed media statement.

Golden Key had been paying high interest, ranging from 24 percent and above, on money taken as a 'security deposit' to issue a credit card.

There is little information available on the total amount of cash taken by the firm. Company officials have not given an accurate count of total volume, though market estimates ran into figures over 12 billion rupees.

A senior group official confirmed that an offer had been made to pay interest next month and take further action after an audit but he was unable to confirm a liability figure.

Kotelawala had said that there was a 'scam' in the company.

Ceylinco has a complex group structure without a clear holding company or a consolidated balance sheet that eliminates intra-group transactions.

Visible assets in the company included a specialist hospital in Rajagiriya, a suburb of Colombo.

Many Sri Lankan companies that got into property development had run into difficulties when a property bubble fired by artificially low interest rates, finally ran out of steam.

Similar to the sub-prime bubble in the US that was fired by artificially low interest rates of the Federal Reserve, despite a war and a worsening budget deficit, Sri Lanka's property bubble also collapsed when interest rates rose.

In the 1980s many finance companies went bust after several years of money printing to finance budget deficits drove inflation to very high levels.

Analysts say when a large number of depositors demand cash at the same time, even established financial firms find that they do not have enough liquidity to pay back customers in time.

In the US many banks ran into trouble because wholesale funding markets dried up and banks refused to extend credit lines. The central bank's lender of last resort facilities are usually only available to commercial banks.

Analysts say contagion from the Golden Key problem could have serious consequences on Sri Lanka's financial sector.

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