Local Banks

Dec 29, 2008 (LBO) – Sri Lanka ‘AA+(lka)’ rated Commercial Bank’s rating is unlikely to be changed following potential hedging losses after courts halted oil derivative payments, but capital build-up at ‘A-(lka)’ People’s Bank could be delayed, Fitch Ratings has said. Private-listed Commercial Bank (CB) has a ‘stable’ outlook on its rating and state-run People’s Bank (PB) ‘positive’.

Fitch said both banks were exposed to counterparty risk after Sri Lanka’s Supreme Court halted payments on oil derivatives contracts sold by the banks to state-run Ceylon Petroleum Corporation (CPC).

Colombo branches of Citi, Standard Chartered and Deutsche were also involved.

Acting as intermediaries, the banks structured the deals with corresponding positions with offshore counterparties, earning a fee or commission and carrying only counterparty default risk, Fitch said.

Commercial Bank exposure was made up of payments due on a 70,000 barrel contract.

People’s Bank’s exposure was payments due on a 100,000 barrel contract, including payments due to Commercial on a 50,000 barrel contract. The payments due from People’s Bank to its counterparties have been halted, as the bank has sought legal advice on its obligations, Fitch said.

“Fitch believes that CB’s