June 5, 2007 (LBO) – Fitch Ratings has upgraded PABC Bank, a Sri Lankan commercial bank to an investment grade BBB- (lka) with the stable outlook, the agency said Tuesday. “The upgrade of the rating recognises improvements in PABC’s profitability and relative improvements in its capitalisation ratios and asset quality since the bank was first rated by Fitch in 2005,” the rating agency said.

“The rating, however, is constrained by the current level of solvency and high sectoral concentrations in the credit portfolio.”

PABC’s national long term rating has a stable outlook.

Fitch says PABC’s profitability has improved due to lower credit costs and expanding net interest margins, which increased to 5.3 percent in FY06 (financial year) from 4.8 percent in FY05.

As a result, the bank’s return on assets (ROA) had increased to a strong 1.4 percent in FY06 from 1.1 percent in FY05, which Fitch says is higher than the national average.

The capital adequacy ratio (CAR) of the bank had improved to 18.3 percent at FY End 06 from 12.0 at FY End 05 due to a rights issue of 551 million rupees in 2006.

Loan growth had been moderate year-on-year at 16.2 pe