Fitch affirms Nations Trust Bank at ‘A(lka)’

FITCH RATINGS Lanka has affirmed the National long-term issuer rating of Nations Trust Bank PLC. (NTB) at ‘A(lka)’, reflecting its improved profitability, good asset quality and moderate asset base. The Outlook on the rating is Stable.

The bank experienced substantial loan growth of 73 per cent during 2006, though over a small base, increasing its loan book by Rs. 11.7 billion, although 33 per cent of the growth stemmed from loans acquired from Mercantile Leasing Limited (MLL), a specialized leasing company which NTB acquired in January 2006. Leases are mostly in the small and medium enterprise (SME) segment, accounting for 19 per cent of the loan book at FYE06 and are secured by the leased assets.

Consumer loans represented 33 per cent of NTB’s loan book at FYE06, and consisted of personal loans (12%), credit card advances (9%) and housing loans (6%). In this segment, mid to high income customers are generally sought after. The corporate segment is dominant and constituted 46 per cent of the bank’s loan book at FYE06.

NTB’s profitability, measured by return on assets (ROA), increased to 0.9 per cent in 2006 from 0.5 per cent in 2005, supported by strong growth in loans and healthy net interest margins but dipped to 0.8% (annualized) in H107 due to higher interest costs of mobilizing funds. The contribution from the leasing and credit cards businesses to the bank’s total income before interest expenses was 13 per cent and 15 per cent, respectively, in 2006.

The bank’s gross non-performing loans (NPL)/gross loans ratio decreased to 3.5 per cent at H107 from 3.6 per cent at 2006 and 4.2 per cent at 2005 on account of loan growth. Term loan NPLs (mostly to middle market clients) increased by 120 per cent.