State Banking

Nov 19, 2009 (LBO) – Sri Lanka’s state-run Lankaputhra Development Bank (LDB) has received an ‘A’ rating on state support, Ram Ratings Lanka said but the bank’s bad loans had risen to 38.9 percent by end-August 2009. “Over the longer term, however, this ratio is expected to ease as concentration risk becomes more diluted due to portfolio expansion,” RAM said.

Swift Deterioration

Lankaputhra’s gross non performing loan ratio had “deteriorated swiftly to 38.9 percent” as at end-August 2009, despite its unseasoned portfolio, RAM said.

LDB was itself created by merging with two other state institutions, a state-run infrastructure fund and SME Bank, another new state bank that collapsed under the weight of bad loans from local entrepreneurial talent.

RAM said about 25 percent of its bad loans at end-August came from legacy assets that came from the merger with SME Bank.

But bank’s board is now chaired by Sarath de Silva, a former general manager of state-run Bank of Ceylon with over 30-year’s banking experience.

The bank’s capital base, boosted by recent mergers was “deemed sturdy at present,” RAM said.

Peoples’ Capital

Lankaputhra mainly funded by government capita