July 18, 2008 (LBO) – Fitch Ratings Sri Lanka has downgraded Seylan Bank’s national long term credit rating by one notch to ‘BBB+(lka)’ and its subordinated debentures also by a notch to ‘BBB(lka)’. Both ratings are still in the investment grade category. At the new level, Fitch Ratings said the outlook was ‘Stable’. Fitch gave Seylan a ‘Negative’ outlook in April 2007.
The rating agency said the downgrade reflected the increased challenges faced by the bank in absorbing credit losses in a weakened economy with a relatively low capital cushion and profitability, and challenges in raising fresh equity capital.
“The ratings, however, also recognise the support element derived by Seylan as one of the six largest and systemically important banks in Sri Lanka, as defined by the Central Bank of Sri Lanka (CBSL), and its yet strong customer franchise,” Fitch said.
Seylan’s gross non-performing loan (NPL) ratio had declined from 11.3 percent at the end of the 2006 financial year to 12.6 percent at the end of 2007 and 13.1 percent at the end of the first quarter of 2008.
This was despite increased recovery efforts, reflecting the effect of the challenging macroeconomic environment, and re