State Rating

July 14, 2009 (LBO) – Fitch Sri Lanka has confirmed the ‘AA(lka)’ rating of state-run Bank of Ceylon (BOC) with a ‘stable’ outlook but noted rising bad loans and higher exposure to the state sector. The agency has also confirmed the ‘AA-(lka)’ rating of the bank’s subordinated debentures, individual rating at ‘D/E’ and support rating at ‘4’.

Fitch said the ratings reflect BOC’s systemic importance as the largest bank in Sri Lanka, its stable financial profile and 100 percent state ownership.

State Exposure

The ratings also considered the expected level of support from the Government of Sri Lanka (GOSL), given its strategic importance as its primary banker.

As the main banker of the government and one of the main bankers to state owned enterprises the balance sheet and off-balance sheet exposure to state increased to 54 percent by end-2008 from 39 percent in 2007, Fitch said.

This was excluding government securities held for liquidity purposes.

Fitch said it expects the proportion to remain high given BOC’s strong government linkage and the government’s increased fiscal requirements.

BOC’s capital adequacy ratios had benefitted from its significant state