Capital Threshold

June 27, 2009 (LBO) – Fitch Sri Lanka has upgraded state-run People’s Bank’s (PB) long term rating by one notch to ‘A(lka)’ from ‘A-(lka)’ and changed its outlook to ‘stable’ from ‘positive’ at the new level, after reaching minimum capital requirements.

The achievement of capital adequacy ratios came form a 1.5 billion rupees capita injection for the finance ministry, profits and an issue of subordinated 2.5 billion rupee bond maturing in 2016.

The improvement of capital adequacy has ended the need for a ‘letter of comfort’ from the government to support the People’s Bank.

Fitch believes that the capital adequacy ratios should continue to remain above the regulatory minimum based on expected capital generation and retention, although the ratios (in particular, the total ratio at the bank level), could come under pressure if aggressive growth is pursued.

PB’s management has indicated its intention to Fitch to manage the capital position so as to ensure that capital ratios are maintained above the regulatory minimum.

PB maintained relatively high net interest margins (5.9 percent in financial year 2008), benefiting from a high proportion of current and savings deposits, (55 percent of deposits and 43 percent of funding at financia