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RAM Ratings assigns:

Long-term 'A' for Lankaputhra Development Bank

Long-term 'A' for Lankaputhra Development Bank RAM Ratings Lanka has assigned respective long- and short-term financial institutions ratings of A and P1 to Lankaputhra Development Bank Limited (LDB or the Bank).

The ratings are primarily based on the Bank's state ownership and its strategic importance vis-à-vis the Government of Sri Lanka's economic development agenda. The ratings are, however, constrained by Bank's short operating history and large risk appetite.

LDB is a licensed specialised bank (LSB) created by the as part of the incumbent President's new economic vision of promoting the development of domestic enterprises. LDB focuses on providing funding to start-up small and medium-scale enterprises (SMEs), a segment overlooked by other banks due to the inherently higher risk. LDB was incorporated in 2006 following cabinet approval; it merged with 2 other state-backed development finance institutions in 2008.

The Bank's strategic direction is guided by its Chairman, A. Sarath de Silva, who has over 3 decades of experience in the banking sector, having also served as General Manager in Sri Lanka's largest commercial bank, Bank of Ceylon.

Not surprisingly, the Bank's short history meant that it accounted for only 1.51% of the LSB industry's assets as at end-December 2008.

LDB is expected to play a pivotal role in the current government's national development agenda.

Given its broad vision to create and enhance entrepreneurial talent in the country, its asset quality is expected to take second place. Despite its unseasoned portfolio, the Bank's gross nonperforming- loan (NPL) ratio (on a 3-month classification basis) deteriorated swiftly to 38.96% as at end-August 2009. RAM Ratings Lanka notes that this had been primarily due to the inherent concentration risk in LDB's lending portfolio. Meanwhile, the Bank has also inherited NPLs following its earlier mergers; about 25% of its NPLs as at end-August 2009 stemmed from such legacy loan portfolios. Over the longer term, however, this ratio is expected to ease as concentration risk becomes more diluted due to portfolio expansion.

LDB's current funding and liquidity positions are deemed sturdy at present, underpinned by its enlarged capital base after the recent mergers, however this is expected to reach industry levels over the medium term. The Bank is currently funded primarily by shareholders' funds, which accounted for 61.14% of its funding base as at the end of FYE 31 December 2008 (FY Dec 2008). Consequently, its public deposits remained negligible. In the long run, however, public deposits are expected to become a material component in the Bank's funding mix.

In the meantime, LDB presently has a large USD-denominated loan, which accounts for some 31% of its funding base.

Having said that, the exchange-rate risk of this loan is mitigated by investing the funds in USD-denominated deposits and debentures.

All combined, the Bank's ratio on interest expense to interest-bearing funds only came up to a low 2.91% as at end-August 2009.

Due to LDB's low-cost funding, its financial performance appears respectable despite its weak asset quality.


Singer Finance invests in long-term stability and security

Singer Finance Increased its stated capital to Rs. 400 million through a Rs. 200 million equity investment made by Singer (Sri Lanka), and took a significant step towards further bolstering its strength and dependability.

With this additional investment, Singer Finance currently has twice the stated capital mandated by the Central Bank of Sri Lanka (CBSL) for registered Finance Companies. Singer Finance recorded a net profit before tax of Rs 75 Mn and net profit after tax of Rs 35 Mn during last ten months period ended Oct 31, which is a significant achievement in profitability comparing with the current economic condition.

Further, as of October 2009, Singer Finance's asset base has grown to Rs. 2.9 billion while shareholders' funds have increased to Rs. 473 million with the recent infusion of new stated capital.

Additionally, as a result of the increase in stated capital, the Company's Capital Adequacy Ratio has increased to 16.55%, well over the minimum 10% ratio required by CBSL directions.

The Company follows a very strict provisioning policy on non-performing loans that is far more stringent than the stipulated minimum requirement of the CBSL to the industry.

In spite of the difficult financial climate that prevailed, Singer Finance's deposit base has also grown to Rs. 1.39 billion.

Over the past five years, Singer Finance has engaged in the financing of all types of capital goods and agricultural equipment as well as products marketed by Singer (Sri Lanka).

Today, the Company has five fully fledged branches and four unique service centres located at Singer Plus outlets in the North Central, Uva and Southern provinces. These service centres are one aspect of the Company's policy of providing the highest quality of service to outstation rural customers. Singer Finance is also involved in group sales to employees of various institutions, in both the public and private sectors.


NTB continues its momentum in business growth

In the interim financials released to the Colombo Stock Exchange on 12th November 2009, Nations Trust Bank PLC reported, on a Group basis, an Operating Profit before Income Tax and Value Added Tax on Financial Services of Rs. 1.2 Bn for the 9 months ended September 30, 2009 against Rs.851Mn for the comparable period last year, reflecting a 41% growth over the previous year. In terms of Profit after Taxes, it reported a growth of 20% to Rs. 505 Mn for the period compared to Rs. 421 Mn in 2008. Current quarter results were even better with profit before and after tax increasing by 48% and 28% respectively compared to the corresponding period in 2008.

Much of the growth was derived from its core banking businesses. Showing resilience and strength in core activities, the group reported increased volumes and improved margins across all its business lines. Net interest income to gross interest income increased from 23% to 32% in the quarter. Other operating income also showed a sizeable increase of 21%.

A managed slowdown in trading activities resulted in a decrease in foreign exchange income for the quarter. Equally, conservative provisioning in response to tough economic conditions moderated earnings. Despite such constraints, PBT Margins remained healthy moving from 8% to 12% as focus on managing expenses also paid dividends.

Expenses increased at a lower rate (5%) than net income (20%) thereby lowering the operating cost: income ratio from 69% to 60% for the quarter. Year to date 2009 operating cost: income ratio is running at 57% compared to 64% for the same period in 2008.

For the 9 months under review, NPLs increased from Rs. 2.4 Bn to Rs. 3.6 Bn, Specific Provisions moved to Rs. 668 Mn from Rs. 327 Mn and the Loan Portfolio decreased from Rs. 41.6 Bn to Rs. 40.4 Bn.

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