Pan Asia Bank had its long term national rating of BBB-(lka), which carries a stable outlook, confirmed by Fitch Ratings Lanka.
The rating is constrained by the bank's weak asset quality and consequently high non-performing loans / equity ratio, Fitch said in a statement.
Although capital adequacy ratios of Pan Asia are strong, the bank is yet to meet the 2.5 billion rupee minimum capital requirement that all licensed commercial banks have to show by June 2010.
Pan Asia operates in the small and medium enterprise segment but has also been growing its corporate loan book, which amounted to 10 percent of loans as at September 2009 compared to about 5 percent at the end of the financial year 2005.
The loan book contracted 11 percent in the nine months ending September 2009 due to the repayment of a few large facilities and the bank taking a cautious approach to loan growth amid the prevailing credit environment.
Asset quality weakened considerably between the 2007 financial year to end September 2009.
"However, the bank stepped up recovery efforts and increased its recovery staff in mid-2009, and Fitch notes the reduction in the rate of NPL (non-performing loan) accretion, with the bank's infection ratio falling to 2.3 percent as at end September 2009."
Profitability as measured by returns on assets improved to 2.5 percent as at end September 2009, driven largely by marked-to-market gains on Pan Asia's government securities portfolio.
"Higher operating costs, driven by PABC's proposed branch expansion in 2010 and higher credit costs could place downward pressure on profits in the 2010 financial year," Fitch said.
Fitch notes there were several changes to senior management positions in 2009 and that PABC is in the process of re-segmenting some of its key product lines as well as tightening credit processes and strengthening the overall risk management framework."
The impact of these changes on the bank remains to be seen.
PABC, is a small licensed commercial bank established in 1995, and is 35.3 percent owned by Mr. K.D.D. Perera and related parties. It operates through a branch network of 35.
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source - www.lbo.lk
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