AAA/P1 ratings for People’s Bank
RAM Ratings Lanka has reaffirmed the respective long- and short-term
financial institution ratings of the People’s Bank (PB or “the bank”) at
AAA and P1; the long-term rating has a stable outlook.
The ratings are premised on the bank’s position as the second largest
licensed commercial bank (LCB) in Sri Lanka, its above-average asset
quality, good performance and healthy funding position that is supported
by its extensive geographical coverage, given its systemic importance,
PB is likely to enjoy extraordinary support from the government.
The bank was incorporated with the primary objective of developing
the cooperative movement in the country through rural banking and
agricultural credit and is currently the second-largest LCB in Sri
Lanka, accounting for 18.55 % of the LCB industry’s assets as at
end-December 2011. Underscored by the systemic importance derived from
its dominant market position, state ownership of 92.27 %, significance
as a state employer and facilitating role in the government’s long-term
macroeconomic objectives, we opine that state support will be readily
forthcoming in times of need, both operationally and financially; this
is reflected by the track record of support historically.
Within the PB umbrella, the bank operates several subsidiaries and
associated companies. He said, PB continues to dominate the People’s
Bank Group’s (“the Group”) asset base, accounting for 88 % as at
end-December 2011. Its fully-owned subsidiary, People’s Leasing Co PLC
(“PLC”), contributes 10.02 % of the group’s assets and is the largest
specialized leasing company (SLC) in Sri Lanka in terms of assets. The
group also has interests in licensed finance companies (LFCs),
insurance, micro-financing, property development and travel. However,
these businesses are relatively small.
We deem the Group’s asset quality to be above average. Its loan
portfolio is dominated by the bank which had a share of 88.47 % as at
FYE December 31, 2011 (“FY Dec 2011”). Meanwhile, 39.09 % of PB’s loan
assets comprise pawning loans that are fully-backed by gold, which is
easily liquefiable.
The Group’s financial performance is deemed good. Backed by both PB’s
lucrative pawning portfolio and PLC’s higher-yielding leasing portfolio,
the Group’s net interest margins (“NIM”) of 5.45% in FY Dec 2011 was
higher than that of the Bank, surpassing peers.’
The Group’s efforts to cut down overheads had also borne fruit; its
historically high cost-to income ratio had improved and was better than
the Bank’s and peers’, as its subsidiaries operate through a relatively
low-cost base due to group-wide synergies. The Group’s pretax profit
almost doubled to LKR 20.97 billion in FY Dec 2011 (FY Dec 2010: LKR
11.39 billion); the Bank accounted for a lion’s share of 73.01%, while
the leasing arm made up 28.53%.
RAM Ratings Lanka, opines that the Group has a healthy funding
profile owing to a strong franchise through state-ownership and an
extensive branch reach. This has resulted in a deposit-dominated funding
structure at both the Group and the Bank level. Elsewhere, as a SLC, PLC
cannot accept public deposits, hence the Group had more exposure to debt
compared to the Bank The Bank’s loan-to-deposit (“LD”) ratio had
increased in fiscal 2011 as a result of stronger loan growth, but was
still better than peers’.
On a separate note, PB’s liquidity is viewed to be average; its
statutory liquid-asset ratio stood at 21.48% as at end-FY Dec 2011,
before moderating slightly at end-March 2012 amid loan growth. The ratio
remains broadly in line with peers.’
The Group’s capitalisation is deemed adequate. Its tier-1 and overall
risk-weighted capital adequacy ratios (“RWCAR”) clocked in at 11.88% and
16.19%, respectively as at end- March 2012. PB’s tier-1 and overall
RWCAR improved during the same period amid strong internal
capital-generation, despite loan growth; the ratios have surpassed the
peers’. |