May 26, 2006 (LBO) – Sri Lanka’s Seylan Bank’s credit outlook could be downgraded if the bank fails to beef up its capital, improves profitability and arrest chronic problems of bad debts, Fitch Ratings Lanka said Friday. Fitch assigned a ‘BBB+(lka)’ rating for Seylan’s upcoming 4-year 1.5 billion rupee subordinated debenture and affirmed the it’s long term rating of A- (lka), but said the bank would have to boost solvency and capital levels, which have been eroding over the last three-years.
“Inability of the bank to reverse its declining capitalisation and solvency position in coming periods could result in a downgrade of its ratings,” the rating agency said in a statement.
Around 500 million rupees of the upcoming debenture issue will be used to repay a maturing debt, leaving a billion rupees for capital and liquidity purposes.
Fitch said it was affirming the bank’s A- (lka) long term rating, as well as BBB+ (lka) ratings of previous subordinated debentures because of several plus points.
“The ratings reflect Seylan’s strong market position and customer franchise, systemic importance as the third-largest private sector bank in the country and its fairly diverse revenue streams,” Fitch said.