Fitch Ratings Lanka has affirmed Commercial Bank’s National Long-Term rating at ‘AA (lk)’ with a Stable Outlook.
The agency has also affirmed CB’s subordinated debentures at ‘AA-(lka)’.
Fitch notes that the CB’s ratings reflect its solid domestic franchise, sound profitability and its strong capital position.
It also says the Bank has arrested the decline in its asset quality resulting in a marked improvement in its gross non-performing loans and net NPL/ equity ratios.
However the agency points out that a reversal of asset quality trends or deterioration in capitalization could exert pressure on CB’s ratings.
CB’s loan book expanded by 25.4% year on year in 2010, after contracting by 4.5% year on year in 2009, reflecting the recovery in private sector credit demand supported by improved macroeconomic conditions.
More than half of the incremental loans originated from the consumer/retail segment that accounted for about 55% of total loans at end-2010 compared to 50% at end-2007.
Fitch expects the bank to sustain strong growth momentum through 2011, in light of the economic resurgence being experienced by Sri Lanka.
“Further, CB continued to report strong core profitability as measured by pre-tax return on assets adjusted for gains or losses on equities and government securities in 2009 and 2010 and loss on oil hedging transactions in 2009” added the Fitch’s rating release on the bank.
Fitch says it was above that of most of its peers’, increasing to 3.3% in 2010 from 3.0% in 2009, supported largely by an expansion in its net interest margins and low cost structures.
The Rating firm says the bank’s capitalization in terms of equity/assets increased to 9.1% at end-2010 before dipping to 8.8% in the first quarter of 2011 as asset growth outpaced equity accretion.
Fitch expects adequate capitalization to be maintained through sound internal accretion and planned capital infusions such as the upcoming rights issue.
CB’s gross NPL ratio declined to 4.2% at end-2010 from 6.9% at end-2009 due to the rebound of the operating environment, enhanced credit monitoring and restructuring through a regulatory dispensation.
The tightening of classification rules that impacted the sector caused NPLs to increase in 1st quarter 2011 before decreasing in 2nd quarter 2011.
Fitch expects the bank to continue to stringently monitor its loan book to limit NPL accretion as its loan book expands and seasons.
The agency notes that although CB’s net NPLs/equity ratio decreased to 17.5% at end-2010 from 28.6% at end-2009, it remains above that of some peers.
Supported by its strong franchise, CB has had a stable deposit base while the current and savings deposits accounted for 56% of total deposits at end-2010.
According to Fitch the bank has a large foreign currency deposit base that accounted for 27% of total deposits at end-2010.
The Rating agency added that the ComBank has continued to expand its presence in Bangladesh and had established 17 delivery points and 14 ATMs in its main cities at end-2010.
Its operations in Bangladesh accounted for 8% of assets and 14% of net income in 2010.
The asset quality of this book remained strong and Fitch expects the bank’s expansion to be prudently executed.
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