Fitch Affirms NTB at ‘A(lka)’

Fitch Ratings affirmed Sri Lanka-based Nations Trust Bank PLC’s (NTB) National Long-term rating at ‘A(lka)’. At the same time the agency has assigned an ‘A-(lka)’ (A minus(lka)) rating to NTB’s proposed subordinated debenture issue of up to LKR1.5 billion. The Outlook is Stable.

NTB’s rating reflects its modest profitability and capitalisation. The rating of the proposed debenture takes into account that the issue will rank as subordinated to NTB’s existing senior debt.

NTB’s loan portfolio grew by 27.3% in FY07, compared to the reported 18.6% growth in the licensed commercial bank (LCB) sector. NTB’s growth was almost entirely funded by way of deposits, which increased by 39% during the same period. Consequently NTB’s share of LCB sector deposits increased to 2.0% at FYE07 from 1.7% at FYE06.

Loan growth continued at a high rate of 7.9% during the three months ending 31 March 2008 (Q108). However, notably the bank’s corporate loan portfolio accounted for 70% of the growth in Q108, compared with only 11% during FY07.

NTB’s asset quality deteriorated during Q108, with gross NPLs increasing to 4.8% of gross loans from 3.7% at FYE06. Much of the above increase occurred during Q108 - similar to the industry trend. However NTB’s gross NPL ratio at end-Q108 is somewhat better than most sector peers.

NTB’s return on assets (ROA) improved to 0.98% at FYE07 from 0.89% at FYE06. ROA held steady at end-Q108 despite higher provisions and rising operating costs, underpinned by a higher net interest margin (NIM) and fee-based income.

The higher NIM was due to an equity infusion (in the form of a rights issue) of LKR1.05.bn that took place in Q108, along with an increase in lending rates.