DFCC Vardhana

Sept 25, 2009 (LBO) – Fitch Ratings Lanka has confirmed the ‘AA-(lka)’ national rating of DFCC Vardhana Bank Limited’s (DVB) with a ‘stable’ outlook, driven by the ‘AA(lka)/stable’ rating of its parent, DFCC Bank. DVB accounted for 29 percent of DFCC group’s assets, and Fitch says it is expected to play an important strategic role in DFCC’s plans to diversify its product and funding base.

The two bank’s operations are closely linked with an integration of treasury and back office functions, as well as shared personnel and input on key decision making committees.

Asset quality has deteriorated sharply (along with the sector) in the 18 months ending in June 2009 given the effects of falling domestic and global demand on DVB’s customer base.

But Fitch says the bank has stepped up recovery and monitoring, resulting in a lower rate of non performing loan (NPL) increase in the second quarter.

It has also curtailed loan growth from June 2009 in view of the weak credit environment.

Fitch says that DVB follows a more stringent policy on classification of non performing advances and reclassification of non-performing overdrafts than current regulatory guidelines.

Fitch expects asset qualit