Fitch Affirms DFCC Vardhana Bank’s ‘AA- (lka)’ national rating
FITCH RATINGS Lanka has affirmed DFCC Vardhana Bank Limited’s (DVB)
National Long-term rating at ‘AA- (lka)’ (AA minus (lka). The Outlook on
the rating is Stable.
The principal factor supporting DVB’s rating is the strong implied
support assumed to be available from its parent DFCC Bank (DFCC/’AA (lka)’).
DVB is envisaged to play an important strategic role in DFCC’s future
plans.
In addition to DFCC’s controlling stake and the use of a common
franchise, the operations of DVB are closely integrated with those of
DFCC. Hence, Fitch believes that DVB will continue to enjoy a high
degree of support from DFCC.
Net profit increased by 80% to Rs.116.8 million in Financial Year
2006 on the back of high loan growth supported by cross selling of loans
from DFCC, and healthy net interest margins from DVB’s high exposure to
the mid-market customer segment. The contribution from the bank to the
overall group increased, but remains low at 7%.
Though the bank’s internal capital generation through profit
retention may not be sufficient to satisfy the enhanced minimum capital
requirement of Rs. 2.5 billion imposed on licensed commercial banks (LCB)
by the original deadline of end-2007, this requirement should be met as
DFCC has indicated its commitment of providing the deficit capital by
this deadline.
Fitch does not anticipate any difficulty will be experienced in this
regard given DFCC’s strong capital position, though it is doubtful that
the capital infused could be fully disbursed by DVB immediately. |