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DateLine Sunday, 8 April 2007

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Seylan Bank assigned A - (lka) rating

Fitch Ratings Lanka has assigned a National rating of 'BBB+(lka)' to the 2007/2012 unsecured subordinated redeemable debentures of up to Rs. billion to be issued by Seylan Bank Limited ("Seylan").

At the same time, the agency affirmed Seylan's 'A-(lka)' (A minus(lka)) National Long-term rating, as well as the 'BBB+(lka)' National rating assigned to the bank's 2002/07, 2003/08, 2004/09, 2005/10 and 2006/11 subordinated debentures. Fitch has revised the Outlook on Seylan's ratings to negative from stable.

The ratings reflect Seylan's systemic importance as the fifth-largest Licensed Commercial Bank in Sri Lanka and its established customer franchise. However, the ratings also factor in the bank's relatively weak solvency, capitalisation and asset quality.

The revision in Outlook reflects Fitch's concern over continuing weak solvency (indicated by net non-performing loans (NPL) equity) due to slow NPL resolution, insufficient internal capital formation and challenges faced in raising fresh equity capital.

Though a non-voting equity infusion of Rs. 1.045bn resulted in a decrease in net NPL/equity to 80.7% at 06 from 102.8% at solvency would come under pressure if high new NPL accretion arises in the absence of a fresh equity infusion plan in the near future.

The bank's internal capital generation also remains constrained on account of a high cost structure, taxes and dividend. Fitch views capital infusion and faster NPL resolution as crucial for Seylan to sustain its ratings.

Seylan consciously reduced loan growth to 14% during '06 compared to an average loan growth of 21% maintained over the past five years.

 

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