Fitch affirms A-(lka) for Seylan Bank

Fitch Ratings Lanka has affirmed Seylan Bank PLC's (Seylan) National Long-Term rating at 'A-(lka)'. The Outlook is Stable, a media release from the Bank said.

Seylan's rating reflects Fitch's expectations of support from the State of Sri Lanka if required, given the bank's systemic importance. However, the state's ability to support is limited by the government's limited financial ability as evident in its 'BB-'/Stable' rating.

Seylan is one of six systemically important domestic banks as identified by the Sri Lankan regulator. Tangible state support was demonstrated since Seylan's crisis in December 2008, including contributing to two equity injections between 2009 and 2011.

During this period Rs. 7.7 billion of equity was injected by the state and private investors.

At end-June 2012 the state effectively controlled 32 percent of Seylan's voting equity.

Seylan's asset quality has improved significantly since its takeover by a new management in 2009.

The value of non-performing advances (NPA) has reduced by 44 percent between end-June 2009 and end-June 2012, due to the bank's focused recovery efforts. Together with modest loan growth, Seylan's NPA ratio improved to 12.34 percent at end-June 2012 from 29.38 percent at end-2009.

Seylan's profitability continues to improve, with return on assets (ROA) increasing to an annualised 1.2 percent at end-June 2012 (end-2011: 0.62 percent, which included a one-off provision for voluntary retirement of Rs. 698 million).