Capital Call

April 15, 2007 (LBO) – Seylan Bank, whose rating outlook was downgraded to negative by Fitch may need a fresh equity addition to boost solvency, the rating agency has said. Seylan currently has a network of 92 island-wide branches.

The bank is raising one billion rupees through a subordinated debenture to which for which a BBB+ (lka) rating was assigned.

Seylan itself has a long-term rating a notch higher, at A - (lka).

"The ratings reflect Seylan's systemic importance as the fifth-largest Licensed Commercial Bank in Sri Lanka and its established customer franchise," Fitch Ratings Lanka said.

"However, the ratings also factor in the bank's relatively weak solvency, capitalisation and asset quality."

The downgrade of the outlook came from concern over weak solvency (measured as net non-performing loans (NPL)/equity), slow NPL resolution, insufficient internal capital formation and challenges faced in raising fresh equity capital, Fitch said.

Last year 1,045 million rupees raised through a non-voting share issue had improved net NPL to equity ratio from 102.8 percent to 80.7 percent.

But Fitch says solvency would come under pressure if bad

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