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Fitch positive on Sampath Bankís ĎAA-(lka)í

Fitch Ratings Lanka has affirmed Sampath Bank PLCís (SB) National Long-Term rating at ĎAA-(lka)í.

The outlook remains positive.

The affirmation reflects SBís strong asset quality and profitability, its comfortable equity buffer maintained against future loan losses, as well as its rapid growth from 2010.

The retention of the Positive Outlook is driven by continuous improvements in the bankís credit metrics supported by ongoing structural changes since 2009 (in terms of tighter credit controls, improved recovery focus and better risk management), as well as its growing franchise and market share in terms of bank sector deposits, loans and assets.

An upgrade of SBís rating would depend on its ability to meet or surpass its core capitalization levels relative to local and regional peers over the medium-term, particularly in view of its continued high loan growth, while maintaining strong asset quality and robust core returns on assets (ROA, excluding non-recurring items). Conversely, the Outlook may be revised to Stable if the bankís current growth momentum results in a further dilution of its core capitalisation to levels more in line with lower-rated peersí.

SBís tier 1 capital adequacy ratio (CAR) was strong at 10.5% at end-June 2011. However, its total CAR at 12.3% was marginally lower than rated-peers and has been decreasing due to rapid loan growth over 2009-mid-2011.

While SBís high profitability supports incremental capital generation, its capital base may require further strengthening to enable it to maintain present capitalisation levels if the current growth momentum is sustained. SBís unprovided NPLs at 5.4% of equity at H111, although higher than the 3.0% at end-2010, are significantly lower than historical levels (end-2009: 26%).

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