Merchant Rating

April 18, 2007 (LBO) – Merchant Bank of Sri Lanka, a listed subsidiary of the state-owned Bank of Ceylon, has received a AA3 rating for its proposed 600 million-rupee debenture, Lanka Rating Agency (LRA) said Wednesday. LRA says MBSL’s growth is capped by its funding. “The rating of the proposed debt issue is similar to that of MBSL’s long-term financial institution rating because the issue ranks pari pasu with the Bank’s other senior unsecured debts,” Lanka Ratings said.

“The ratings are primarily based upon the credit strength and financial flexibility of MBSL, which stem from its parent the state-owned Bank of Ceylon, the largest commercial bank in Sri Lanka.”

LRA has confirmed Merchant Bank of Sri Lanka’s long-term financial institution rating of AA3 and short-term rating of L1 with a stable outlook.

The proceeds from the proposed debenture issue will be used to fund MBSL’s growing loan base and to repay the Bank’s debts that have to be repaid in 2007.

MBSL’s gross non-performing-loan ratio on a 6-month basis improved to 10.41 percent from 16.58 percent due to write-offs and recoveries.

It had written off 117 million rupees of bad debts, dating back from l