June 28, 2013 (LBO) – Sri Lanka’s People’s Bank’s exposures to the state and state enterprises has gone up in 2012, and the lender plans to cut exposure to gold backed loans, Fitch Ratings said confirming its ‘AA+(lka)’ rating. The lender which accounts for 20 percent of banking assets, 23 percent of loans and 19 percent of deposits had seen exposure to the state and state enterprises rise to 32 percent of assets in 2012 from 26 percent in 2012.
Fitch said the state had a high propensity to support People’s Bank due to its systemic importance and had a quasi-sovereign status and full government ownership by the state also had limited ability to provide “extraordinary support” as seen by its ‘BB-‘ sovereign rating.
The five largest exposure on its balance sheet amounted to 219 percent of the bank’s equity. While most SOE loans are have state guarantees, credit equal to 88 percent of PB’s equity are not guaranteed, Fitch said.
But customers of state-run Ceylon Electricity Board and Ceylon Petroleum Corporation pay their bills to collection accounts of the bank, which are used to finance loans, reducing liquidity risk, Fitch said.
Fitch said the bank’s Tier I capital adequacy ratio at 9.8 percent was weaker th