Moderate Safety

August 14, 2007 (LBO) – Lanka Rating Agency (LRA) has confirmed the long-term rating of Sri Lanka’s LB Finance Ltd at BBB₃, with a stable outlook.

The short-term rating has also been confirmed at L₃

An LRA statement said the ratings were based on LB Finance’s “improving financial performance and adequate asset quality” but were partially offset by its “weakening funding structure and inadequate capital cushioning.”

The BBB₃ rating indicates moderate safety with the firm under-performing in some areas but having the capability to overcome problems. It is at the last level in the investment grade.

LB Finance had written off non-performing loans but bank borrowings were rising, LRA said. “Bank borrowings have increased, leading to deterioration in its loan-to-deposit ratio, which stood at 121 percent as at December 2006,” the rating agency said.

“LRA has concerns regarding the present funding strategy as secured bank borrowings not only rank above the company’s depositors, but also introduce funding-concentration risk.”

However robust loan growth