Regional Development Bank affirmed at 'BBB+(lka)'/Stable

Fitch Ratings Lanka has affirmed Regional Development Bank's (RDB) National Long-Term rating at 'BBB+(lka)'. The outlook is stable. RDB's rating derives support from its 100 percent state ownership.

The stable outlook reflects Fitch's expectations of continued moderate state support in the event of stress. The rating is, however, constrained by the bank's relatively small asset base by local standards and, therefore, relatively less systematic importance compared with other large state-owned banks.

The rating could be upgraded if the systemic importance of RDB were to increase, such as through a higher market share of rural lending or an enlarged franchise. Conversely, the rating would be downgraded if the state's ability or willingness to support to the bank were to weaken, or if a significant deterioration in liquidity or solvency were to occur. RDB's exposure remains predominantly to farmers and SMEs in rural areas.

Credit concentrations remain low, reflecting the granular nature of RDB's micro finance loans (MFI loans). Sector concentration is mainly to agriculture/MFI loans (42 percent of loans at end-2010; 39 percent at end-2009) and pawning loans (43 percent; 37 percent).

Many of the agricultural loans are backed by Central Bank poverty alleviation refinance schemes. The balance loan book comprises small loans for duration of three to four years, mainly towards house renovation mostly to government servants.