Fitch revises Sanasa Dev. Bank's outlook
Fitch Ratings Lanka has revised Sanasa Development Bank's (SDB)
outlook to positive from stable. The agency has simultaneously affirmed
SDB's National Long-Term Rating at 'BB+(lka),'
The revision of the outlook reflects SDB's improved credit metrics,
which are now more in line with those of higher-rated, peers.
SDB's rating continues to reflect its healthy capitalisation relative
to peers, high net interest margins (NIMs), improving asset quality, and
effective management of its core business - micro finance (MF) lending.
Improvements to SDB's financial profile, including maintaining its
capitalisation and asset quality, while continuing to focus on its core
expertise of MF lending may lead to an upgrade.
Conversely, deterioration in asset quality and capitalisation levels
could result in its outlook being revised to stable, while a significant
deviation in lending practices away from SDB's core expertise of MF
lending leading to a weakened risk profile could result in a downgrade.
Lending is concentrated on MF, with housing and property loans
accounting 65 %, leasing 11 %, pawn broking 12 %, and lending to Sanasa
societies and unions 6 %. Loans are generally small ticket loans with an
average tenor of one to three years. Loans grew 12 % in H112 and 32 % in
2011, driven by branch expansion.
Fitch expects NIMs to improve, after a decline in H112, as loans are
re-priced. SDB's NIMs remain high relative to peers, reflecting its
traditional focus on micro lending which generates high yields.
NIMs decreased to 8.4 % at end-H112 from 9.7 % in 2011 due to
increased funding costs.
The bank's pre provision return on assets decreased to 2.7 % in H112
(2011: 3.6 %), due to losses at some branches, but remains in line with
peers. SDB has been able to manage the quality of its loans despite MF
borrowers being more sensitive to economic cycles.
However, non-performing loans (NPLs) could increase through the
bank's exposure to the agriculture sector (13 % of total loans) as the
prevailing drought takes its toll on its MF borrowers.
NPL ratios have been on an improving trend, declining to 4.3 % in
H112 from 4.4 % in 2011 and 5.7 % in 2010, while its net NPLs/equity
improved to 17.9 % at end-H112 (end-2010: 24.5 %) Capitalisation may
decline given that following its public listing in May 2012 SDB is no
longer allowed to receive its regular capital injections under
regulatory requirements. SDB's Tier 1 ratio has historically remained
healthy due to regular capital injections from shareholders and foreign
funds.
Its Tier 1 ratio and equity to assets ratio decreased to 15.5 % and
13.3 % respectively at end-H112 from 17.3 % and 14.4 % at end-2011.
Funding is predominantly through deposits, which accounted for 73 %
of assets at end-H112.
The Sanasa Group, consisting of over 8,000 co-operatives, accounted
for 30 % of total deposits which have a high rollover rate. |