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Sri Lanka's HNB Bank to raise more debt capital
07 Nov, 2011 08:02:23
By Nishani Pigera
Nov 07, 2011 (LBO) Sri Lanka's Hatton National Bank will sell five billion rupees of debt within the next six months to boost capital and prepare itself to give more loans in the future, an official said.
The bank wants to increase its Tier II capital and boost total capital adequacy to more than 14 percent of risk weighted assets, which is much higher than the required rate.

"Within the next three to six months we would probably look at another maybe Rs 5 billion plus," said Rajendra Theagarajah, chief executive at HNB said.

"We have an internal aspiration of benchmarking out total capital adequacy in excess of 14-15 percent."

"This is really to create that space which the governor (of the Central Bank) mentioned sometimes ago so that the bank would have a strong enough capital buffer to meet the positive growth opportunities in the country and look forward for the next five years."

He said the bank has already raised nearly eight billion rupees in capital via a combination of equity and debt.

During May to September 2011 HNB raised six billion rupees in Tier I equity capital and two billion in Tier II through a subordinated debt, a Fitch, a ratings agency said.

"Ideally a lot of banks prefer to maintain a capital adequacy ratio of around 10 percent which is the minimum requirement set by the Central Bank," said Maninda Wickramasinghe, the country head, Fitch Ratings Lanka.

"If any bank maintains that percentage as a policy I would say it is a well managed bank in terms of risk profile and 14 percent is a very good rate."

A recent Fitch report said HNB's total capital adequacy was 11.4 percent in the first half of 2011, with half year profits added, and Tier I alone was 10.2 percent, though slightly lower than last year.

Fitch has rated the lender, 'AA-(lka)' with a stable outlook. Its subordinated debt is rated a notch lower at A+ (lka). The new capital will back HNB's future loan growth and increase capacity to absorb potential loan losses, Fitch said.

The bank will continue to raise capital in the next year, mostly in debt.

"I think we have raised most of the equity component of it, so the balance would be Tier II instruments from a good mix of prospective investors," Theagarajah said.

"Wherever possible we will seek to list these instruments so we will create at the same time a good corporate bond market in this country and create the all important liquidity in these instruments."

Fitch said Sri Lanka's government and related entities held 28 percent of the banks stock and Stassen group held 18 percent.

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