Bank Rating

Sept 02, 2009 (LBO) – Fitch Ratings said it has confirmed HSBC Sri Lanka’s (HSBCSL) National Long-term rating at ‘AAA(lka)’ with a stable outlook. In addition to conservative write-off policies adopted for unsecured consumer NPLs, HSBCSL’s provisioning is more prudent, with specific provision covering 69 percent of NPLs at FYE08.

Profitability as measured by ROA (return on assets) remained flat at 1.3 percent due to higher effective taxes, but improved to 1.8 percent in H109 due to better cost efficiency, Fitch said.

HSBCSL sustained net interest margins above that of the sector due to lower funding costs and high yielding assets.

“HSBCSL’s capitalisation remains healthy, although equity/assets decreased to 9.2 percent at FYE08 (FYE07: 10.9%) due to the repatriation of profits to the head office and the increase in assets, but continued to be above the 7.4 percent for the sector at FYE08.”

Further, Fitch said, capital adequacy ratios (CARs) remain comfortable under the Basel II framework, with core and total CARs of 11.16 percent and 11.9 percent, at June 2009.

Customer deposits continue to be the predominant source of fund