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Fitch Ratings Lanka Ltd (FRL) assigned SL AA (Double A) national rating for Implied Long-term unsecured Senior Debt of DFCC Bank.

SL AA long-term rating denotes a 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.

DFCC's rating reflects its long and sound operating history, strong capital base and a conservative and competent management team. The bank has maintained a consistent track record of profitability enabling the build up of equity. ROA over the last four years averaged a healthy 3.1% and ranks high among the larger financial institutions. At present DFCC enjoys the highest capital/assets ratio among the larger banks in Sri Lanka.

The last few years has seen management adopting an internal focus. Operating procedures have been refined, particularly in the area of risk management, which at present is above average in the local context. Increased provisioning and write offs has improved asset quality. The composition of its loan book is also good, with low concentrations, in terms of sectors as well as customer exposures. These developments are positive and will help the bank defend its position as a significant and profitable provider of long term finance.

However, the rating also recognises the inherently riskier nature of its core activity of project finance and the limited diversification options available to DFCC at present given the narrower scope of activities that is permitted. The declining availability of multilateral credit lines (witnessed globally) would also pose challenges to its future funding strategies. Furthermore the banks systemic importance was viewed to be of a lower order than that of the larger commercial banks.

DFCC was set up in 1955 through an Act of Parliament but was essentially a non-state entity with key financial institutions subscribing to its equity. The bank was listed in 1956. At present state owned entities hold approximates 30% of its equity, whilst three other large financial institutions collectively hold a further 25%.

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 2100 international bank and financial institutions.

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