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Thu, 23 October 2014 14:11:05
Sri Lanka Fitch confirms 'BBB-(lka)' rating of Pan Asia Bank
04 Jul, 2008 17:08:10
July 04, 2008 (LBO) - Fitch Ratings has confirmed the local long-term rating of Pan Asia Banking Corporation (PABC) at 'BBB-(lka)' with a stable outlook.
The agency said in a statement the rating reflects the bank's improving capitalisation and profitability but remains constrained by new capital requirements, high bad loans to equity ratios and credit concentrations.

Fitch said the management of the bank, which is controlled by businessman Dhammika Perera, had informed the rating agency that its investors are committed to raising the balance equity to meet the new minimum capital requirement set by Central Bank.

Due to loan growth and recoveries, the share of non-performing loans (NPL) in the total loans portfolio declined to 7.3 percent at FYE07 from 8.4 percent at FYE06.

"However, this ratio increased to 10.1 percent at Q108 due to the bank's early compliance with the Central Bank's new directions on NPLs," Fitch Ratings said.

"As such, PABC's net NPL/equity ratio was high at 34 percent at FYE07 and increased to 51 percent at Q108 subsequent to its early compliance regarding NPLs."

Deposits grew by 35.3 percent in FY07 over the year before, outpacing loan growth of 27.6 percent.

"As such, advances/deposit ratio improved to 86.9 percent at FYE07 from 92.1 percent at FYE06."

Fitch also said that although the banking sector's margins have tightened, PABC's yields on its target market were high.

The increased capital in the bank's funding mix enabled its net interest margins to increase to 6.2 percent in FY07 from 5.3 percent in FY06.

The bank's return on assets increased to 1.5 percent in FY07 from 1.4 percent in FY06.

Fitch said it notes that PABC's lending profile continues to be mainly to small and medium-sized entities and retail customers in the sub-prime category.

"Credit concentrations remained high in the export-import and wholesale trading sectors," it said.

Loans to these sectors accounted for half of loans.

"Given that most loans were overdrafts and largely cash-backed, interest rate mismatches were on the whole better than the sector average," Fitch said. PABC has added eight branches to its network of 29 branches and customer centres.

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