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| Friday, 28 January 2005 |
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BB+ (sri) rating for Pan Asia Banking Corp. Fitch Ratings Lanka Ltd (FRL) has assigned BB+ (sri) (double B plus) national rating for the Implied Long-term unsecured Senior Debt of Pan Asia Banking Corporation Ltd. (PABC). BB+ (sri) rating indicates that there is a possibility of credit risk developing, particularly as a result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. PABC's rating reflects the restructuring measures initiated by its new management since late 2001 to improve operations and internal processes. These measures have somewhat restored depositor confidence, which resulted in total deposits growing 84% from December 2001 to September 2004. PABC reported an audited net profit of Rs 30 million for the nine months ended September 2004, and is expected to maintain a positive bottom line over the coming periods as well. However underlying profitability as measured in terms of ROA would be weighed down by the high cost structure. PABC cost/income ratio was 74% for the first nine months of 2004. The rating also takes into account the weak asset quality as indicated by the high NPL ratio of the bank; ie 18% as at June 2004. Nevertheless FRL recognises the enhanced recovery efforts over the last few years, which has enabled PABC to reduce its NPL ratio from the high 35% reported in December 2001. Subsequent to the recapitalisation in 2003, PABC has reported capital adequacy ratio's above the minimum statutory requirement. However PABC's equity capital remains relatively weak with a low equity/assets ratio of 4%. Furthermore, the bank's Net NPL/Equity remained high at 125% at as September 2004, indicating a high risk of equity erosion due to potential losses that could arise from the NPLs. |
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