Sanasa Development Bank's ratings reaffirmed at BBB/P3

RAM Ratings Lanka has reaffirmed Sanasa Development Bank PLC's ("SDB" or "the Bank") long- and short-term financial institution ratings of BBB and P3. Concurrently, the outlook on the long-term rating has been revised from stable to positive.

The revision reflects the Bank's demonstrated ability to maintain its asset quality indicators over the past few years despite catering to a relatively risky target market and improved capitalisation levels supported by consistent capital infusions.

The ratings are supported by SDB's above average asset quality, good performance and capitalisation along with its strong rural presence, particularly in micro-financing. However, the ratings are moderated by the Bank's small stature, its relatively risky target clientele and below average liquidity position.

SDB is a relatively small licensed specialised bank ("LSB"), accounting for 3.16 percent of the LSB industry as at end-December 2011; it operates as the apex financial institution of the Sanasa movement, one of the largest co-operative networks in the country, and focuses on providing micro-financing solutions to the rural population, thereby promoting regional economic development.

The Bank mainly disburses loans to Sanasa members through grassroots level primary societies, to non-members through the Bank's own group lending scheme under which loans are mutually guaranteed by group members, as well as to small- and medium-sized enterprises ("SME"). SDB's proximity to its clients through the cooperative network coupled with the social pressure and stigma associated with loan defaults in rural communities has contributed towards good collections and enabled the Bank to maintain above average asset quality.

SDB's asset quality is opined to be above average attributed to its good collections on the back of its group lending system and proximity to its clients through the co-operative network which has enabled the Bank to maintain a better gross non-performing loans ("NPLs") ratio than its LSB peers.