Stringent Standards

June 27, 2011 (LBO) - RAM Ratings Lanka has reaffirmed the Construction Guarantee Fund’s (CGF) long- and short-term financial enhancement ratings at BBB+ and P2 with the long-term rating having a stable outlook. "The ratings are supported by the Fund’s very strong capitalisation and stringent underwriting standards, as well as the expected financial support from the Sri Lankan government, albeit with a lower degree of importance than other state-owned financial institutions," it said.

"However, the ratings are pressured by the Fund’s weakening financial performance, small size and inherent dependence on a single sector."

As a government-owned entity with an economic objective, the Fund may also lend to other government institutions.

CGF was formed by the government of Sri Lanka in 1999, to play a strategic role in the construction industry by providing indirect financial assistance to construction contractors.

However, the Fund is viewed to rank lower in priority than larger state-owned financial institutions within the government’s overall economic framework.

Meanwhile, the Fund has been allocated 100 million rupees of seed capital, of which 55 million has already been disbursed t