Mortgage Strength

May 16, 2008 (LBO) – A mortgage backed security issued by Sri Lanka's HDFC Bank retained its enhanced credit, three notches higher than the issuer, as Fitch Ratings Lanka confirmed an 'AA-(lka)' rating on the securities.

However, loans overdue for 6-months increased marginally to 2.4 percent from 2.0 percent and defaulted loans over 12 months increased to 0.3 percent from 0.2 percent by end-March 2008 from June 2007.

"HDFC has not repurchased defaulted loans from the trust as per the transaction's legal documents," Fitch said,

"However, the agency does not view this as a serious concern due to the small percentage - 0.3 percent - of assets in this category."

At the moment HDFC holds collections from the portfolio in a bank account in its own name. If HDFC's rating fall below 'A-(lka)' Fitch says the collection account will have to be transferred to an account in the name of the trust. HDFC Bank itself is rated 'A-(lka)' with a negative outlook, after its rating was cut by one notch.

The series A pass through securities issued by a home loan securities trust is now heavily over-collateralized.

"The affirmation is based on the good performance of the mortgage portfolio to date, the

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