Nations Trust Bank retains its ‘A-(sri)’ credit rating

Sri Lanka’s Nations Trust Bank has retained it’s A-(sri) credit for its long-term unsecured debt, Fitch Ratings Lanka said in a release on Thursday. Sri Lanka’s Nations Trust Bank has retained it’s A-(sri) credit for its long-term unsecured debt, Fitch Ratings Lanka said in a release on Thursday. The rating indicates low credit risk, but it is vulnerable to external economic changes, the rating agency said.

With a 1.4 percent share of total banking assets, Nations Trust Bank is one of the smallest players in the local industry.

The bank’s rating also reflects it’s operational and financial profile, sustained asset quality, a reasonably good risk management framework and satisfactory capitalisation level.

Despite its size, a possible merger with Mercantile Leasing Ltd through a share swap, could raise NTB’s capital base to about Rs. 2.0 billion from Rs. 1.4 billion as at June 2005.

Nevertheless, the bank’s capital is within a comfort zone, with Total Risk Weighted Capital Ratio estimated at 15.02 percent as at June ’05 (Tier 1–10 percent) while the corresponding ratio as at Dec. ’04 was 13.91 percent (Tier 1–10.44 percent).

Tier II capital was boosted by the five million euro equivalent rupee denominated subordinated loan recently.

Profitability in terms of ROA (return on assets) was 0.36 percent (annualised) as at June ’05.

During 2004, ROA fell to 0.22 percent compared to 1.45 percent in 2003 in the absence of one-off capital gains, higher taxation, increased provisioning and high operating costs as the bank builds scale.

However, there has been an improvement in operational profitability with ROA (at the pre-provisioning level excluding one-off capital gains) increasing from 0.97 percent in 2003 to 1.32 percent in 2004.

Asset quality is comparatively good and has been maintained with gross non performing loans ratio of about six percent as at June ’05 and Dec ’04.

Loan loss reserve (LLR) coverage reduced somewhat as at June 05 to 54 percent from 60 percent in 2004.

Nevertheless NTB’s LLR coverage compares favorably with peers.

Similarly solvency in terms of Net NPL/Equity ratio was relatively good at 23 percent as at June 2005 despite increasing from 17 percent as at Dec 04.

-LBO Newsdesk: LBOEmail@vanguardlk.com