HSBC Sri Lanka secures a AAA (lka) rating from Fitch

October 20, 2006 (LBO) – HSBC Bank’s Sri Lankan unit has been rated AAA (lka) by Fitch Ratings Lanka for their long-term senior debt. ‘AAA’ (lka) is the highest rating assigned to in issuer or issues. The bank joins the local triple A club, which was earlier limited to Citibank N.A., Dialog Telekom, National Savings Bank, John Keells Holdings and Sri Lanka Telecom.

A branch of the Hongkong & Shanghai Banking Corp Ltd., HSBC has been in Sri Lanka since 1892, offering a wide array of products through 11 branches.

The local unit is also the largest foreign bank in the island, commanding about 6-percent of the total banking system assets.

The bank’s core business lies in retail and corporate banking. These business lines, along with Treasury operations, accounted for 37.1 percent, 45.2 percent and 16.1 percent of the bank’s net operating income, respectively in FY05, Fitch said Friday.

The bank’s financial performance has been impressive. It has been able to consistently top the billion rupee net profit mark since FY01.

The bank has been able to attract deposits at lower rates than the market due its superior brand image, while charging lending rates keeping in line with movements in general market interest rates.

However, Fitch notes that the cost to income ratio of the bank has increased significantly to 47.7 percent in FYE05, up from 34.6 percent in FYE04, mainly on account of a 185.1 percent year-on-year increase in head office expenses and increases in personnel expenses.

Historically, HSBC Sri Lanka has been a cost-efficient bank and Fitch notes that the ability to retain cost competitiveness is a key factor for the bank to sustain its profitability.

The bank’s asset quality numbers are among the best in the Sri Lankan banking industry. Non-performing loans (“NPL”)/gross loans were at 0.9 percent in FYE05, down from 1.2 percent in FYE04. Provision coverage/NPLs were good at 78.6 percent in FYE05. Last year, the bank’s head office infused 3.04 billion to growth the local unit’s asset book, despite being well in excess of the enhanced minimum capital requirements currently imposed by Sri Lanka’s Central Bank.