Turning Around

January 29, (LBO) – State Mortgage and Investment Bank has trimmed its non-performing loans sharply, the rating agency Fitch said, affirming the banks' A (lka) rating with a stable outlook. Gross non-performing loans were cut down to 14.7 percent of gross loans by the third quarter of 2006, from 21 by the end of the 2005.

"SMIB's monitoring and follow-up procedures were enhanced during H206, resulting in a significant improvement in the asset quality within SMIB's mortgage portfolio as well as the resultant solvency," Fitch Ratings Lanka said.

Absolute mortgage non-performing loans have been reduced by 26 percent during the third quarter alone.

Solvency (measured by Fitch as net NPL's/Equity, and excluding EPF loan NPL's) improved to 27 percent from 40.5 percent during the period, but the rating agency says SMIB's asset quality and solvency remained weaker than its peers.

Last year Fitch downgraded SMIB, because of its rising bad loans and low loan growth.

Profitability was strong with net interest margins improving to 9 percent (annualized) at the third quarter of 2006, from 8.3 percent, despite rising market interest rates.

The high net interest margin came