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Sri Lanka Fitch confirms Sampath Bank at 'AA-(lka)'
01 Jul, 2009 11:36:41
July 01, 2009 (LBO) – Sri Lanka's Fitch Ratings said it has confirmed the 'AA-(lka)' national long-term rating of Sampath Bank, as well as its individual and support ratings at 'D/E' and '5', with a stable outlook.

It said in a statement that the national long-term rating on the bank's outstanding rated subordinated debentures of 1.75 billion rupees was also confirmed at 'A+(lka)'.

Fitch said it also assigned an 'A+(lka)' national long-term rating to the bank's proposed subordinated debenture issue of up to three billion rupees.

The confirmations reflect Sampath Bank's sound liquidity and capital adequacy, and good franchise among local commercial banks, Fitch said.

Fitch expects the bank to broadly manage the current sector-wide deterioration in asset quality over the short- to medium-term, given the bank's redoubled efforts in this respect coupled with expectations of easing inflation and interest rates, while maintaining healthy profitability.

Conversely, the bank's inability to reverse the decline in asset quality, or the lack of a visible improvement in macro-economic conditions could result in negative rating pressure, Fitch said.

Sampath Bank's profitability improved in 2008, largely due to widening net interest margins (NIM), as higher yields on incremental loans compensated for both lower business volumes due to poor loan growth and higher borrowing costs.

Group return on assets (ROA) stood at 1.09 percent in 2008, as against 0.95 percent in 2007, and compared favourably with the peer median of 1.00 percent, Fitch said.

The current sector-wide reduction in deposit rates following strong signs of easing market interest rates, is likely to benefit Sampath's key NIMs and keep its ROA healthy over the short- to medium-term, despite possibly higher credit costs and operating expenses, it said.

Fitch's expectation of healthy ROA, combined with the bank's conservative dividend payout and slow asset growth, is likely to keep Sampath Bank's capital structure in line with its rating.

Asset quality continued to decline over the five months to end-May 2009, in line with the current sector trend, driven by the preceding highly inflationary and high interest rate environment, Fitch said.

However, Fitch notes that the bank has taken steps to arrest the decline.

For instance, Sampath's loan book contracted in the fourth quarter, 2008 which is a quarter earlier than peers as the bank shifted its focus to recoveries.

Furthermore, the bank's credit decisions became more centralised since early-2009, and its recoveries were strengthened by reallocating experienced credit personnel.

The banks group asset base stood at 142.3 billion rupees 2008 and accounted for 6.25 percent of total licensed commercial banking (LCB) sector assets, which it controls via 124 branches.

The bank is considered as one of six systemically important LCBs by the Central Bank of Sri Lanka.

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