Fitch Affirms Bank of Ceylon's ratings

Fitch Ratings Lanka has affirmed Bank of Ceylon's (BOC) National Long-term rating at 'AA(lka)', individual rating at 'D/E' and Support rating at '4', reflecting its systemic importance as the largest bank in Sri Lanka, its stable financial profile and 100% state ownership, and taking into account the expected level of support from the Government of Sri Lanka (GOSL) and its strategic importance as the primary banker to GOSL.

The outlook on the ratings remains stable.

Being the main banker to GOSL and one of the main bankers to state-owned enterprises (SOEs), BOC's credit exposure to the state sector (GOSL and SOEs) remains high at 42% of loans and 28% of assets at FYE07, but decreased from 48.9% of loans and 31% of assets at FYE06.

In addition, holdings of government securities (including restructuring bonds) accounted for a further 17% of assets at FYE07 (15% of assets for the six systemically important banks). Off balance sheet exposure to the state sector represented 35% of commitments and contingencies and 11% of assets at FYE07. Fitch notes that such exposure is to some extent a function of BOC's financing of petroleum imports.

Fitch notes that BOC continues to benefit from its significant state sector exposure in terms of capital adequacy. Core and total capital adequacy ratios stood at 10.62% and 11.60% at H108 under the Base III regime effective in FY08 and remain comfortable.