Business Banking

Fitch assigns ‘BB-(lka)’ National Rating to Sanasa Development Bank

Fitch Ratings Lanka has assigned a ‘BB-(lka)’ (BB minus(lka)) National Long-term rating to Sanasa Development Bank Ltd (SDB).

The rating reflects the bank’s relatively good profitability and asset quality, albeit constrained by its low capitalisation, the challenges in meeting the minimum capital requirement set by the Central Bank of Sri Lanka, and inherent risk embedded in the micro-finance (MFI) segment.

SDB is predominantly involved in MFI based lending (representing 41.1 per cent of its total loans at FYE06), with an average loan size of approximately LKR0.2 million. Housing loans and vehicle leases accounted for 27.6 per cent and 17.9 per cent respectively at FYE06, while pawn-broking loans accounted for 13.4 per cent.

SDB’s loan growth in FY06 was mainly driven by housing loans, which helped SDB maintain a high loan growth of 50 per cent in FY06. Aided by loan growth in the periods since FY03, SDB’s net interest margin (NIM) and ROA improved despite having an inherently high cost structure (operating costs accounted for 60 per cent of its total income in FY06).

In FY06, SDB’s NIM and ROA was 7.1 per cent and 2.0 per cent respectively (6.8 per cent and 1.4 per cent in FY05), and in H107, its NIM improved further to 7.5 per cent (annualised), with ROA at 1.8 per cent (annualised).

Fitch notes that SDB’s asset quality has steadily improved due to loan growth and NPL recovery. At H107, its NPL/Gross Loans improved to 3.8 per cent from 4.2 per cent at FYE06.

Its NPL coverage also improved to 30.4 per cent at H107 from 27.1 per cent at FYE06. Consequently, SDB’s solvency position as measured by Net NPL/Equity ratio improved to 20.5 per cent at H107, from 23.8 per cent at FYE06.

SDB’s Tier 1 and total reported capital adequacy ratios were 15.2 per cent and 14.6 per cent respectively at FYE06 (15.8 per cent and 15.1 per cent at FYE05).

In 2006, the Central Bank of Sri Lanka (CBSL) increased the minimum capital requirement for licensed specialised banks to LKR 1.5bn, with a phased deadline - at least 50 per cent of the shortfall at FYE08 and full compliance by FYE09.

With an equity base of LKR681m, SDB has to increase its existing share capital to LKR0.9bn by FYE08 and reach an equity base of LKR1.5bn by FYE09.

To achieve this, SDB has several equity programmes planned via the Sanasa movement, foreign MFI institutions and an investment fund to reach the required minimum capital requirement by the stated CBSL deadline of FYE09. However, these equity infusions are subject to regulatory clearances.

SDB is a licensed specialised bank established as the apex credit institution of the Thrift and Credit Cooperative Movement (Sanasa ).

SDB’s primary objective was the strengthening of the SANASA movement to evolve as a sustainable rural credit institution. By virtue of its objectives, profit is not the sole motive of SDB.

Sanasa is a credit cooperative with a 100 year history covering all provinces. At FYE06, SDB was 85 per cent owned by Sanasa - related cooperatives.

Seylan introduces ‘2 in 1’, automated investment manager

Seylan Bank recently introduced “2 in 1” the Automated Investment Manager which converts idle funds in Current Accounts to Savings balances, thus, enabling the customer to enjoy the best of both worlds.

Branded “2 in 1”,the product offers to those individuals and partnerships with a current account balance of more than Rs. 10,000/- ,the opportunity of leaving a minimum balance of Rs. 10,000/- in the Current Account and having the excess transferred to a matching Savings Account overnight.

These balances would automatically earn interest overnight which is credited to the savings account on a weekly basis for the first time in Sri Lanka.

Cheques issued from the Current Account would be paid by a matching transfer from the Savings Account which would take place automatically, real time.

The Savings Account would not have a passbook but the account holder would receive a bank statement at the end of every month.

All standing order instructions, loan recoveries and bank charges could be recovered from the Savings Account which makes it easier to reconcile the Current Account statement.

In addition, the account holder could also become eligible for Merit Rewards benefits by balances maintained in the Savings Account.

The fully automated product enables the bank service its customers real time and with convenience.

A spokesman for the Bank mentioned that this is a continuation of their endeavours to leverage the best that technology could offer thereby helping the Sri Lankan public with productive returns and value additions, in line with the thinking of Chairman Dr. Lalith Kotelawala.

Islamic banks should boost efforts to meet targets

Islamic banks in Indonesia need to step up efforts to meet next year’s target of around 90 trillion rupiah ($9.58 billion) in assets, a central bank deputy governor said on Wednesday.

Analysts say Indonesia has the potential to become a major player in global Islamic finance because around 85 percent of its around 220 million people are Muslim.

But it lags neighbouring countries like Malaysia and Singapore as the country is still in the process of adjusting its legal, tax and accounting framework, which could enable Muslim investors to tap into Islamic financing.

“From 42 million SMEs (small and medium enterprises), only 38 per cent is being financed by conventional banks. So there’s huge potential for Islamic banks,” Siti Fadjrijah told reporters.

“Next year, we have to work two to three times harder to be able to accelerate Islamic banking. Ahead, we still have big challenges regarding capital, human resources and services,”

Islamic banking has been slow to develop in Indonesia because regulations, such as the Islamic banking law, rules on tax and Islamic bonds are still being discussed by the government and parliament.

Sharia, or Islamic law, bans payment of interest, allowing money to be earned only from physical assets. It also bars investment in alcohol, tobacco or gambling.

Indonesia’s central bank said in July it expects total assets of Islamic banks to more than triple to 91.57 trillion rupiah by the end of 2008.

But, even after that increase, the proportion of Islamic assets would only be about five percent of total banking assets.

Total assets of Islamic banks stood at 33 trillion rupiah in October, or about 1.7 per cent of the country’s banking industry.

Reuters

Barcap to double Asia revenue in five years

Barclays Capital , the investment arm of Britain’s third-biggest bank, plans to double revenue and staff in Asia by 2013, putting its faith into growing Asian markets despite recent credit turmoil.

Ivan Ritossa, global head of foreign exchange and Asia rates, told Reuters on Wednesday that dislocation in credit markets was not expected to derail growth in financial markets in Asia and the rest of the world.

“There has been a lot of gloom and doom around the credit markets, but if you look at the other markets they are functioning quite well,” Ritossa said in an interview. “They are less volatile than they were in 2002 or in 1998 and 1997.”

The Asian financial crisis battered Asian markets in 1997 and 1998. The technology bubble then burst in 2000, followed by three years of falling stock markets in Asia before a recovery in 2003.

“Clearly the credit market is stressed at the moment but the worst may be behind us,” he said, after Barclays this month said it took a less-than-feared 1.3 billion pound ($2.69 billion) writedown for securities linked to the U.S. subprime crisis.

Ritossa said that the yen-dollar exchange rate looked fair after the greenback’s decline against major currencies.

“On many measures the U.S. dollar is cheap. Against the yen it’s probably fair value but it looks cheap against the euro and the pound.”

Reuters