Sri Lanka Sampath Bank rated 'AA' by RAM

Oct 27, 2010 (LBO) - Sri Lanka's Sampath Bank was given an 'AA' long term rating with a 'stable' outlook and 'P1' short term rating, on better risk management which improved asset quality and capital adequacy, RAM Ratings Lanka said.

"In 2008, Sampath recruited several experienced personnel to fortify its internal systems and market position," RAM said.

"The risk-management strategies implemented since then have already begun bearing fruit."

The bank had slowed the increase of its non-performing loans (NPLs) to 5.91 percent to 7.47 billion rupees in the year ending December 2009 from 13.78 percent growth in 2008.

It's gross NPLs had contracted to 6.8 percent of loans by end June 2010 from 7.63 percent in end December 2009.

Prudent Provisioning

"The Bank’s healthier loan portfolio also reflects its expanded pawning portfolio, which entails lower default risk and is well collateralised," RAM said.

"Moreover, the management’s conservative approach is reflected in the Bank’s prudent provisioning, i.e. by providing fully for NPLs and disregarding the value of collateral.

"As a result, the Bank’s coverage levels are well above its peers".

In line with its improving asset quality, Sampath's credit costs as a percentage of total assets had fallen from 0.60 percent in December 2008 to 0.19 percent by December 2009.

Helped by a widening net interest margin (NIM) and stronger non-interest income the bank's pre-tax profits had increased to 3.98 billion rupees in 2009 from 1.41 billion rupees.

An expanding pawning portfolio (gold backed loans) which had wider margins had helped increase net margins.

Other income had increased 977.08 million after shares of an associated had been sold.

Capital

"Sampath’s funding and liquidity levels are considered healthy as its funding base is dominated by customer deposits," RAM said.

"In addition, the Bank’s loan-to-deposit ratio has historically been more conservative than the industry average.

Sampath's Tier-1 risk-weighted capital adequacy ratio was 10.4 percent in 2009 higher than the required 5.0 percent and overall capital adequacy was 13.45 percent (required 10 percent).

Incorporated in 1986, Sampath is the fifth-largest bank in the Sri Lankan banking industry, with 6.24 percent of industry assets as at end-December 2009. RAM said two largest state banks had 40.53 percent of industry assets.

source - www.lbo.lk