Credit Upgrade

Oct 26, 2010 (LBO) – Sri Lanka’s Pan Asia Banking Corporation (PABC) has been upgraded ‘BBB(lka)’ from ‘BBB-(lka)’ with a ‘stable’ outlook on improving asset quality and capitalization, Fitch Ratings Lanka said.

While PABC’s rapid loan growth in 2010 (50 percent in the nine months ending 30 September 2010 was is a concern, Fitch said.

But growth has been on a small base, and credit risk was mitigated to some extent by its increased exposure to gold-backed loans which were 16 percent of advances at end-September 2010 versus 5 percent at end-2008, as well as improved underwriting standards and closer monitoring.

A 442.6 million rupee rights issue in May 2010 had allowed PABC to to meet a regulatory 2.5 billion rupee minimum capital requirement for commercial banks by the June 2010 deadline.

While the regulator has now further enhanced the limit to 5.0 billion rupees to be met by end 2015, Fitch says PABC is on track to meet an interim target of 3.0 billion rupees by an end-2011 deadline.

Capital adequacy continued to remain comfortable due to PABC’s higher percentage of cash and gold-backed loans, and was further bolstered by the rights issue earlier in the year (tier 1 capital adequacy