Sept 29, 2010 (LBO) - Fitch Ratings Lanka has confirmed DFCC Bank's (DFCC) National Long-term rating at 'AA(lka)' with a stable outlook, a statement said.
The agency has also affirmed DFCC's senior debentures at 'AA(lka)' and subordinated debentures at 'AA-(lka)'.
"DFCC's ratings are driven by its strong capitalisation supported by ongoing high profitability," the rating agency said.
"However, the ratings also take into account DFCC's relatively high exposure to riskier project finance and the challenges in securing long-term funding for its longer tenure project loans."
Fitch said the affirmation of DFCC's ratings comes on the back of the ongoing, albeit gradual economic recovery, which together with increased recovery efforts helped ease non-performing loan (NPL) pressures faced by the bank in 2008-2010.
Absolute NPLs which peaked in June 2009 fell by 19 percent at the end of the 2010mfinancial year.
A sudden spike in NPLs at end-June 2010 - driven by a few large customers - also eased by end-August 2010, Fitch said.
"However, the continued loan contraction resulted in DFCC's NPL ratios remaining high in relation to the sector."
Nevertheless, Fitch said, DFCC's conservative provisioning policies combined with its large capital cushion resulted in un-provided NPLs accounting for just 15 percent of equity against 25 percent among its rating category peers.
DFCC's consolidated loan book contracted by 14 percent over March 2009-June 2010, due to weak credit demand particularly project loans and an increased focus on managing NPLs.
"Although disbursements at DFCC increased in Q211, its loan growth is likely to remain low in the year ending 31 March 2011 (FY11)," Fitch said.
Growth at its subsidiary, DFCC Vardhana Bank - accounting for 28 percent of group loans - picked up faster, due to the working capital nature of its loans.
Project loans and leases accounted for 57 percent and eight percent of group advances at and are largely matched with long-term borrowings from bilateral and multilateral funding partners.
DFCC's profitability as measured by return on assets (ROA) increased to three percent in the 2010 financial year from 2.5 percent the year before, driven mainly by wider net interest margins.
Higher provisioning costs in the first quarter of the 2011 financial year resulted in a lower ROA of 1.8 percent after adjusting for the one-off 2,921 million rupee gain on the sale of a 10.7 percent voting stake in its associate Commercial Bank.
"DFCC's margins continued to benefit from its high proportion of equity-funded assets and a high investment in treasury bonds in H209, when interest rates were at their highest," Fitch said.
"The contribution from associate companies to the group's pre-tax profit was 24 percent in FY10 and would be considerably lower in the coming year due to the sale of part of its stake in Commercial Bank."
The rating agency said DFCC's ratings are sustained by its high levels of capitalisation - equity/assets of 26.5 percent and Tier 1 capital adequacy ratio of 26.2 percent at end-June 2010.
However, Fitch noted that as DFCC diversifies into commercial banking, its strong capital position could come under pressure.
"Also, any sustained deterioration in its asset quality or profitability, which is likely to erode its strong equity base, could place downward pressure on its ratings."
source - www.lbo.lk
No comments:
Post a Comment