May 15, 2008 (LBO) – RAM Ratings has confirmed Merchant Bank of Sri Lanka’s (MBSL) long-term local rating of AA- with a stable outlook, saying the rating is supported by state-run Bank of Ceylon, its parent. RAM also confirmed MBSL’s short term rating of P1 and the AA rating assigned to unlisted debentures of 300 million rupees and 14.6 million rupees.
RAM Ratings said the merchant bank’s reliance on short term loans had increased. Though it had intended to raise 600 million rupees through debentures, rising Treasury bill yields had halved the sale.
The Bank of Ceylon had supported MBSL with short-term loans. Its short term loans amounted to 30.65 percent of interest bearing by end December 2007 up from 20.85 percent in 2006.
“Nonetheless, the Bank had been able to secure other financing lines on top of the temporary overdraft facility provided by its parent,” RAM Rating said.
“Moving forward, the Bank intends to apply for a specialised banking license in order to alleviate its funding risk.”
High interest rates had pushed up MBSL’s costs, with net interest income growing only 3.36 percent in 2007.
Though MBSL had managed its overheads, its costto-income rati