Fitch revises BoC’s outlook to positive

Fitch Ratings Lanka has yesterday revised Bank of Ceylon’s (BoC) outlook to positive from Stable, and simultaneously affirmed its National Long-Term rating at ‘AA(lka)’, Individual rating at ‘D/E’ and Support rating at ‘4’.

The agency has also affirmed BoC’s subordinated debentures at ‘AA-(lka)’.

BoC’s Positive Outlook largely reflects the prospect of a potential improvement in the Government’s profile as indicated by the Positive Outlook on Sri Lanka’s Long-Term IDR, and the consequent increased capacity for the Government to provide support to the bank in view of its high systemic importance and importance to the Government.

BoC’s ratings reflect its high systemic importance as the largest bank in Sri Lanka, full state ownership, strong franchise and modest financial profile.

BoC’s loan book grew by 23.6 percent in H110, supported by renewed private sector credit demand and reduced lending rates, following a further contraction of its loan book by 1.6 percent in 2009 (2008: contraction of four percent).

Fitch notes that BoC’s loan book exposure to the state sector (Government of Sri Lanka and State-owned-enterprises) has gradually decreased, but remains significant, reflecting its strong state linkages (34 percent of loans at end-2009, 49 percent at end-2006).

Corporate and consumer/retail exposures accounted for 27 percent and 39 percent, respectively, of BoC’s loan book at end-2009. Similar to the rest of the banking sector, BoC experienced a deterioration of its asset quality in 2009.

The gross NPL ratio increased to 5.8 percent at end-2009 (end-2008: 5.2 percent), impacted by increased NPLs and loan book contraction, before improving to five percent at H110. Fitch expects a reduction of BoC’s NPLs during Q310, reflecting the recovery initiatives implemented by the bank and a gradually improving macro-economic environment.