HDFC Bank picks up A (sri) rating from Fitch for its upcoming Rs. 500 mn debt issue

State housing giant, HDFC Bank picked up a A (sri) rating from Fitch Ratings Lanka for its upcoming Rs. 500 mn four year unsecured debenture issue. State housing giant, HDFC Bank picked up a A (sri) rating from Fitch Ratings Lanka for its upcoming Rs. 500 mn four year unsecured debenture issue. An A (sri) long term rating implies low levels of credit risks and capacity to honour financial payments on time. This capacity may, nevertheless be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings, Fitch said Monday.

The funds raised will be used to help fund the growth in the loan book, which has grown 17 percent to Rs. 7 bn for the nine months ended Sept 2004.

From Jan-Sept., HDFC’s financial performance has been on track with the previous year. The net interest margin has been maintained at a healthy 7.3 percent, however due to a higher tax charge, return on asset (ROA) has declined to 2.8 percent from 3.7 percent on 2003.

Asset quality has improved with non-performing loans or NPL’s falling 18 percent in absolute terms. Gross NPL ratio in September 2004 has improved from 11.1 percent to 7.4 percent, while Net NPL/Equity improved to 43 percent (59 percent as at Dec 2003).

HDFC is a licensed specialised bank providing housing finance.

Presently majority of its portfolio comprises of loans to the low income segment of the market, which makes up a large proportion of the housing demand.

HDFC was incorporated as a building society in 1984, converted to a corporation in 2000. The bank moved up to a licensed specialised bank in 2003.

Since inception, HDFC focuses on lending to low income segments, which presently account for the majority of housing demand in Sri Lanka. The average loan size is about Rs. 170,000 at present.

However, rivals (commercial banks and other housing finance companies) have focused largely on the middle and upper income groups.

HDFC’s continuing strategy is to target the low income groups via its competences in providing total housing-loan solutions encompassing legal advice, architectural and other technical support provided at nominal charges.

Currently, HDFC has a network of 21 branches. But nearly 26 percent of funds disbursed in 2003 (42 percent in 2000) were concentrated in Colombo. HDFC’s top five districts accounted for over 50 percent of its loan portfolio in 2003 (72 percent in 2000).

The Sri Lankan government through National Housing Development Authority (NHDA) and Employees Trust Fund (ETF) owns 90 percent of HDFC. But an upcoming public offer to raise Rs. 600 mn will reduce the government’s stake to around 20 percent 30 percent.

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.

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