City Bank

Fitch affirms Citibank’s ‘AAA(lka)’ rating

Fitch Ratings has affirmed the ‘AAA(lka)’ National Long-term rating assigned to Citibank N.A.- Colombo Branch (CitiSL).

The outlook remains stable.

CitiSL is a branch and part of the same legal entity as Citibank N.A. (‘AA-’ (AA minus)/Rating Watch Negative), which is a fully-owned subsidiary of Citigroup Inc.

As such, CitiSL’s rating factors in the financial strength of Citibank N.A. which is currently rated higher than the sovereign long-term foreign currency issuer default rating of ‘B+’/Stable.

The bank’s performance has improved considerably over the last two years. Profits increased by 86.8% yoy in FY07 (6.2% in FY06) and ROA improved to 2.5% in FY07 (FY06: 1.6%), on the back of steady growth in net interest margins (NIM) and rapid increases in non-interest income.

Non-interest income has been an important contributor to CitiSL’s profits in recent periods with the bank’s growing trade finance and investment banking business generating increased revenues in terms of fee and commission income.

High fee and commission income earned on the structuring and sale of hedging derivatives also played a particularly important role in H108, causing annualised ROA to rise further to 5.8%.

NIMs have historically been lower than the sector due to CitiSL’s large corporate and government loan exposure where margins are generally thinner. However, margins have moved inline with the private licensed commercial bank (LCB) sector since FYE07, and rose to 6.3% in H108 from 4.9% in FY07 (FY06: 4.3%).

This is mainly on account of re-pricing within the bank’s loan portfolio and increased investments in higher yielding assets.

Due to its stringent credit evaluation criteria and strategic focus, CitiSL’s loan exposure has continuously remained at the top end of the credit spectrum. At H108, 85% of loans were to large corporates and 14.5% to the Government of Sri Lanka (GoSL) and GoSL-owned entities.