Tuesday, 17 September 2002 |
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Fitch Ratings Lanka affirms Commercial Bank's SL AA+Rating Fitch Lanka Ltd (FRL) has affirmed the SL AA+national rating for implied Long-term unsecured Senior, Debt of Commercial Bank of Ceylon Ltd. (CB) SL AA+rating denotes a very low expectation of credit risk. It indicates very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. The rating action reflects CB's financial condition which is possibly the best among the local commercial banks. Besides its traditional strength in corporate banking. CB has lately developed a Small and Medium Enterprise and retail banking franchise. These two segments together accounted for 40% of loans and 56% of pre-tax profits as at end-2001. CB's underlying profitability is relatively good. The bank's ROA, at the pre provisioning level, over the last couple of years, was the highest amongst local banks. Income before provisions increased by 4% during the 1H, 2002, over the same period last year. Lower provisions and taxation enabled post tax profits to record a higher 12% increase for 1H, 2002. Given the weak macroeconomic situation, CB's asset quality deteriorated and its gross NPLs rose by 32% in 2001. Consequently, the bank's gross NPL ratio increased to 8.4% as at end-2001 (7.3% in 2000). CB's NPL coverage has been declining over the years and was barely 21% as at end-2001, indicating a greater reliance on collateral. Given the difficulties associated with realising collateral, this level of provisioning appears inadequate. However, its net NPLs to equity ratio at 40% was still the healthiest among all local banks. CB's capital position is relatively strong and its reported capital adequacy ratio (CAR) of 16.2% (Tier 1-15.7%) was the highest among local banks. This relative position was further strengthened by a preference share issue of Rs. 906 million raised last year, (18% of Dec 2000 equity), which due to 'technical' reasons has not been included in the CAR computation. Hence, even after adjusting for the full inclusion of FCBU assets and under provisioning, the bank's capital ratios remain comfortably above the regulatory minimum (9%). |
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