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| Sunday, 18 April 2004 |
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| News Business Features Editorial
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FRL upgrades BoC's rating to SL AA Fitch Ratings Lanka Ltd (FRL) has upgraded the rating for Bank of Ceylon's (BOC) implied long-term unsecured Senior Debt to SL AA (S L Double A). SL AA long-term rating denotes a very low expectation of credit risk. The rating indicates a very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. The upgrade reflects improvements in BOC's financial profile over the last couple of years. Profitability and asset quality have improved, while the bank had continued to build its loan loss reserves. BOC's provisioning standards and its net NPL position are considerably stronger compared to most other domestic banks. The rating also reflects BOC's pre-eminent position as the largest bank in Sri Lanka with a leading share of customer deposits, its high systematic importance and 100% state ownership. The bank's exposure to the government and State Owned Enterprise's (SOE's) has reduced substantially over the last couple of years. Loans to the government and SOE's accounted for approximately 37% of total loans as at Dec 2003, as against 60% of loans in April 2002. While recent political developments have heightened risks, exposure to government and SOEs could increase once more, FRL is of the view that the magnitude of such borrowings would be lower, in the absence of a heightened military conflict. Improvements in the banks risk management systems over the last couple of years as well as greater independence displayed by management are likely to ensure that such eventualities are better managed. Nevertheless, FRL will monitor developments in this area closely. BOC, was incorporated in 1939, and has been the state's premier bank since its nationalization in 1961. In 1998, the government initiated measures for the operational improvement of the bank, and it embarked on a restructuring exercise. Such restructuring measures are ongoing, but it has already started to reflect on some improvements in the bank's risk profile. Fitch Ratings Lanka Ltd is a joint venture between Fitch Ratings, USA, International Finance Corporation, Washington, Central Bank of Sri Lanka and several other leading local financial institutions. Fitch Ratings, USA is one of the three global full service credit rating agencies and rates over 85 sovereign nations, 7,600 structured finance ratings, 2,900 international banks and financial institutions. Fitch Ratings Inc. has over 90 years' experience in credit analysis with a combined analytical and professional staff of more than 1,400 many of whom possess over 10 years of specialised industry experience. |
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