Fitch affirms 'AAA(lka)' long-term rating of Citibank branch

Fitch Ratings has affirmed the 'AAA(lka)' National Long-term rating assigned to Citibank Sri Lanka Branch. The Outlook on the rating remains stable.

Citibank Sri Lanka Branch (CITISL) is a branch of Citibank N.A. and belongs to the same legal entity as the latter.

CITISL's National Long-term rating is linked to Citibank's Foreign Currency (FCY) Issuer Default Rating (IDR) of 'AA+'/Stable Outlook' assigned by Fitch Ratings, which is higher than Sri Lanka's IDR of 'BB-' (BB Minus)/Negative Outlook.

CITISL's loan book contracted by 21.2% on a year-on-year basis between FYE05 and FYE06, before rebounding to post a 39.3% growth between FYE06 and H107 - an effective increase of 10.4% from FYE05. In addition, the bank's loans to corporate entities and Government- and State-owned entities accounted for 96.2% and 3.2% of the loan book at FYE06.

Due to highly conservative lending standards, CITISL's loan book growth was low and asset quality was strong. As a result, the gross non-performing loans (NPLs)/gross loans ratio was the lowest among the banks rated by Fitch (at 0.6% at H107). Solvency - as measured by net NPLs/equity - was zero, since the bank has specific provisions which fully covered the NPLs.

Nonetheless, Fitch views that CITISL's loan book concentration to the textile sector (28.2% at FYE06) - albeit mostly to the better borrowers in the country - could prove to be a stress on asset quality, should there be an economic slowdown in any of the importing countries.

The bank's post-tax ROA in FY06 was steady at 1.6%, although the figure is low compared with past highs, due to a progressive increase in effective taxation that peaked at 54.1% of pre tax profits in FY06 from 9.6% in FY02.