Commercial Bank gets a AA (sri) rating for upcoming Rs. 1 bn debt issue

Commercial Bank is raising a billion rupees through private placement of four-year debentures, largely to feed its growing loan book. Commercial Bank is raising a billion rupees through private placement of four-year debentures, largely to feed its growing loan book. The issue carries a AA (sri) rating from Fitch Ratings Lanka, is ranked one notch lower than Commercial Bank’s senior debt AA+ (sri).

The Subordinated Debentures in terms of priority, will be subordinate to deposits and all senior debt obligations, but will rank above the preference and ordinary shares.

AA (sri) rating denotes a very low expectation of credit risk, indicating a very strong capacity to meet financial commitments.

The funds raised will supplement deposit mobilisation and help fund the expansion of its loan book.

The issue also qualifies as Tier II capital, strengthening Commercial Bank’s regulatory capital.

The Bank’s capital adequacy ratio (CAR) as at end June 2004 was estimated at 13.55 percent (Tier 1 – 11.07 percent).

However, Fitch Ratings is of the view that the Bank’s reported total CAR is understated, given that the bank’s redeemable preference share capital, although in substance similar to subordinated debt, is excluded in calculating regulatory capital.

With assets of Rs. 123 bn as at June 2004, Commercial Bank is the fourth largest commercial bank in the system.

Established in 1969, the bank’s traditional focus was trade finance and corporate banking, but has since focussed on expanding its SME and consumer banking segments as well.

Fitch Ratings Lanka Ltd is a joint venture between Fitch Ratings, USA, International Finance Corporation Washington, Central Bank of Sri Lanka and several other leading local financial institutions.

Fitch Ratings, USA is one of the three global full service credit rating agencies and rates over 85 sovereign nations, 7,600 structured finance ratings, 2,900 international banks and financial institutions.

-LBO Newsdesk: LBOEmail@vanguardlanka.com