Fitch affirms 9 Lankan banks ratings but says operating environment ‘volatile’

Tuesday, 22 July 2014 00:54 - - {{hitsCtrl.values.hits}}

Fitch Ratings has affirmed the ratings on nine of Sri Lanka’s banks, all with Stable Outlooks, though it said the operating environment remains potentially volatile. The Long-Term Issuer Default Ratings (IDRs) on National Savings Bank and Bank of Ceylon (BOC) have been affirmed at ‘BB-’ and their National Long-Term Ratings have been affirmed at ‘AAA(lka)’ and ‘AA+(lka)’, respectively. Fitch has also affirmed the National Long-Term Rating of People’s Bank at ‘AA+(lka)’. At the same time, Fitch has affirmed the Long-Term IDRS of DFCC Bank and National Development Bank PLC (NDB) at ‘B+’ and their National Long-Term Ratings at ‘AA-(lka)’. The National Long-Term Ratings of Commercial Bank of Ceylon PLC (Commercial Bank) have been affirmed at ‘AA(lka)’. The National Long-Term Ratings of Hatton National Bank PLC (HNB), Sampath Bank PLC and DFCC Vardhana Bank Ltd. have been affirmed at ‘AA-(lka)’. “The operating environment, which remains potentially volatile, is a key rating driver for the Sri Lankan banking sector,” Fitch said. This is a challenge for banks, notwithstanding the current high real GDP growth, which Fitch expects to continue. While private-sector credit demand is currently muted, the potential for high growth exists given the low overall levels of credit to GDP. Rapid credit growth – including pawning (gold-backed lending) – in the past raised Fitch’s Macro-Prudential Indicator for Sri Lanka into the highest ‘3’ category. The consequence of this was a rise in NPLs in the banking system. Fitch said it does not expect the deterioration in the banks’ asset quality stemming from NPLs from gold-backed lending to persist given the relatively short life cycle of the product. President tweets Lanka’s welcome of BRICS Bank

President Mahinda Rajapaksa yesterday welcomed the formation of the New Development Bank (NDB) by the five BRICS nations – Brazil, Russia, India, China and South Africa. “Sri Lanka welcomes the initiative of BRICS leaders to establish a new development bank. It will assist emerging nations significantly,” the President said in a Twitter message. The New Development Bank by the BRICS nations will compete with the International Monetary Fund (IMF) in financing infrastructure projects in the founding members of Brazil, Russia, India, China and South Africa, and in other emerging-market countries as well. The new financial institution will start out with a capital of $50 billion, to be paid in equally by all five BRICS countries and eventually the Capital will grow to $100 billion according to a memorandum of understanding signed by the five nations. The first chief executive of the new Bank for the first year will be from India and the bank will be headquartered in Shanghai, China. Russia will be the chairman of the representatives. President revokes Gazette slapping taxes on employees President Mahinda Rajapaksa yesterday agreed with trade unions to revoke the contentious Gazette which slapped taxes on financial services sector employees. As per the Special Gazette 1857/8 released in March this year, employees were required to pay taxes on profit sharing schemes, government grants, assistance and subsidies and short-term employment benefits. Trade Unions were up in arms over it coming into force with retrospective effect from 1 April 2012. Several protests were planned for today as well. However financial sector trade unions yesterday held crisis talks with President Rajapaksa who after listening to their grievances agreed to revoke the Special Gazette.