Banking

Fitch confirms ratings on small and mid-sized Sri Lankan banks

Tuesday October 3, 2017 7:38 pm

ECONOMYNEXT – Fitch Ratings Lanka said it has confirmed the National Long-Term Ratings on five small and mid-sized Sri Lankan banks, saying their capitalisation remains thin and higher more asset-quality risks due to greater exposure to retail and small business customers.

The banks are Nations Trust Bank PLC (NTB), Pan Asia Banking Corporation PLC (PABC), Union Bank of Colombo PLC (UB), SANASA Development Bank PLC (SDB) and Amana Bank PLC.

Fitch said the impact of the implementation of financial rule SLFRS 9 in 2018 could also significantly reduce the banks’ capital positions.

The full report follows:

Fitch Ratings-Colombo-03 October 2017: Fitch Ratings Lanka has affirmed the National Long-Term Ratings on five small and mid-sized Sri Lankan banks. The banks are:

— Nations Trust Bank PLC (NTB)
— Pan Asia Banking Corporation PLC (PABC)
— Union Bank of Colombo PLC (UB)
— SANASA Development Bank PLC (SDB)
— Amana Bank PLC (Amana)

A full list of rating actions is at the end of this commentary.

The affirmations follow Fitch’s periodic review of small and mid-sized Sri Lanka banks and are driven by the banks’ intrinsic profiles. Fitch expects the banks’ capitalisation to remain thin in the medium term, as they are likely to sustain a strong increase in loans. PABC, SDB and Amana infused capital to meet their respective minimum regulatory core capital levels. The impact of the implementation of SLFRS 9 in 2018 could also significantly reduce the banks’ capital positions.

The banks’ absolute non-performing loans (NPLs) increased in 1H17, in line with our expectations. Fitch believes asset-quality risks are greater for these banks due to their greater exposure to retail and SME customer segments, which we see as more susceptible to economic downturns.

KEY RATING DRIVERS

NATIONAL RATINGS AND SENIOR DEBT

NTB’s ratings reflect its declining capitalisation, modest franchise and high product concentration. NTB’s capitalisation has come under pressure due to strong loan expansion (12.9% in 1H17 and 23.5% in 2016), which exceeded internal capital generation. Its Fitch Core Capital (FCC) and Tier 1 capital ratios continued decreasing to 10.7% and 10.6%, respectively, at end-1H17, from 12.2% and 12.1% at end-2015.

NTB is a mid-size licensed commercial bank that had a modest market share gain to 2.5% of banking sector assets at end-1H17. Its current account, saving account (CASA) base decreased to 25.5% of deposits at end-1H17, from 32.5% at end-2015, similar to the trend seen across the sector.

Product concentration remains high against peers, as leasing and credit cards accounted for 20.0% and 10.0%, respectively, of NTB’s gross loans at end-1H17. Its gross NPL ratio decreased to 2.5% at end-1H17, from 2.8% at end-2015, despite an increase in absolute NPLs.

PABC’s rating reflects further deterioration in its asset-quality metrics during 1H17 relative to higher-rated peers, which has put pressure on the bank’s improved capitalisation following its LKR2.1 billion rights issue in March 2017. The rating also reflects potential profitability pressure stemming from lower loan growth and higher credit costs. PABC’s gross NPL ratio rose to 6.3% at end-1H17 from 4.7% at end-2016, due to a 32% growth in absolute NPLs stemming from high loan-growth periods. Its loan book expanded by just 1% in 1H17 as the bank focused on strengthening its book quality.

PABC requires a further LKR1.3 billion to meet the minimum regulatory capital level of LKR10 billion by 1 January 2018. Fitch expects the bank to achieve this through retained profits in 2017, as further capital infusions are not expected. The bank’s Tier 1 capital ratio increased to 10.8% at end-1H17, from 8.4% at end-2016.

PABC’s outstanding senior debentures are rated at the same level its National Long-Term Rating as they rank equally with the claims of its other senior unsecured creditors.

The Outlook on UB’s rating remains Positive to reflect the shift in UB’s risk profile which is driven by structural changes in its loan book composition that could support better asset quality. This stems from more diversified customer exposures, which are similar to higher-rated peers. However, UB has continued to sustain a rapid increase in loans that could pressure asset quality if not managed prudently. In addition, NPLs stemming from subsidiary, UB Finance Co. Ltd (32% of total NPLs at end-1H17) remains a significant drag on the group’s total NPLs. However, the bank’s gross NPL ratio improved to 2.6% at end-1H17, from 3.6% at end-2015.

UB’s rating reflects its small franchise, weaker profitability and higher capitalisation relative to higher-rated peers. The bank accounted for just 1% of banking sector assets at end-1H17. Its profitability has been constrained by low net interest margins (NIM) and high cost structures. Fitch believes the bank is likely to focus on increasing exposure to more profitable customer segments and income generation to improve profitability. UB’s FCC ratio fell to 19.4% at end-1H17, from 21.2% at end-2015, with sustained high loan growth of 14.4% in 1H17 and 38% in 2016. Fitch expects capitalisation to decline to levels similar to peers in the medium-term alongside continued rapid loan expansion.

SDB’s rating captures its high-risk appetite in terms of substantial exposure and rapid loan growth in the retail and lower-end SME segments. Fitch believes this could pressure the bank’s capitalisation in the absence of capital raising, despite its LKR1.4 billion capital infusion in May 2017, as internal capital generation may be insufficient. SDB’s profitability, as measured by return on assets, remained low due to its high operating and credit costs. This is despite a high NIM compared with peers, which reflects its target market segment.

SDB’s reported gross NPL ratio increased to 2.2% at end-1H17, from 2.1% at end-2016. Fitch expects asset quality to deteriorate as loans season.

Amana’s rating reflects its small and developing franchise and high risk appetite stemming from its predominant exposure to SME and retail segments. Amana began operations in 2011 and accounted for 0.6% of banking sector assets at end-1H17. There has been a large increase in the bank’s capitalisation following a July 2017 rights issue to meet the higher 2018 regulatory minimum capital requirements. Fitch expects Amana’s capitalisation ratios to moderate in the medium term from the estimated post-rights issue FCC ratio of 22.7% as the loan book expands.

Amana’s asset-quality metrics remain better than those of peers despite deterioration in the bank’s gross NPL ratio to 1.5% at end-1H17 from 0.9% in 2016. Fitch expects asset-quality pressure to increase as the loan book seasons due to the bank’s high SME and retail segment exposure of 75% of gross loans at end-2016.
Amana remains mainly deposit funded and has maintained a stable CASA base relative to peers of over 50%. We expect the bank’s profitability metrics to improve in the medium term relative to better-rated peers as it capitalises on existing infrastructure and enhances its franchise, leading to a lower cost/income ratio, despite potentially higher credit costs from asset-quality pressure and SLFRS 9 implementation.

SUBORDINATED DEBT

The Basel II compliant Sri Lanka rupee-denominated subordinated debt of NTB and PABC are rated one notch below the banks’ National Long-Term Ratings to reflect subordination to senior unsecured creditors.

RATING SENSITIVITIES

NATIONAL RATINGS AND SENIOR DEBT

NTB’s rating could be downgraded if there is a continued decline in capitalisation seen through sustained strong loan expansion in the absence of capital raisings. Increased capital impairment risk through continuous asset-quality deterioration could also result in a downgrade. An upgrade is contingent upon lower product concentration, a significant increase in capitalisation and a more stable funding profile alongside progress in building a stronger commercial banking franchise.

The upgrade of UB’s rating is contingent upon its ability to manage risks from continued high loan growth, despite structural changes to its loan composition, which would be reflected through sustained asset-quality improvement. The improvement in UB’s financial profile to levels similar to higher-rated peers could also support an upgrade. Capital impairment risks stemming from sustained rapid loan expansion or asset-quality deterioration could pressure UB’s rating.

SDB’s rating could be downgraded if there is a continued deterioration in capitalisation, either through aggressive loan growth or greater unprovided NPLs. An upgrade would be contingent upon moderation of its risk appetite and sustainable improvements in asset quality and profitability.

Fitch does not see upside potential for PABC’s ratings in the near term, as the bank may face difficulty is sustaining adequate capital buffers similar to higher-rated peers. PABC’s rating would be downgraded if loss-absorption buffers further deteriorate, either through a greater share of unprovided NPLs, aggressive loan-book growth or weaker internal capital generation.

A rating upgrade for Amana is contingent upon the expansion of the bank’s franchise and improved and sustained financial profile, in particular, achieving profitability levels that are similar to higher-rated peers. Deterioration in loss-absorption buffers, either through excessive growth above management forecasts or a greater share of unprovided NPLs, could put downward pressure on Amana’s rating.

Senior debt ratings will move in tandem with the banks’ National Long-Term Ratings.

SUBORDINATED DEBT

Subordinated debt ratings will move in tandem with the banks’ National Long-Term Ratings.

The rating actions are as follows:
Nations Trust Bank PLC
National Long-Term Rating affirmed at ‘A(lka)’; Stable Outlook
Basel II-compliant subordinated debentures affirmed at ‘A-(lka)’
Pan Asia Banking Corporation PLC
National Long-Term Rating affirmed at ‘BBB-(lka)’; Stable Outlook
Senior debenture rating affirmed at ‘BBB-(lka)’
Subordinated debenture rating affirmed at ‘BB+(lka)’
Union Bank of Colombo PLC
National Long-Term Rating affirmed at ‘BB+(lka); Positive Outlook
SANASA Development Bank PLC
National Long-Term Rating affirmed at ‘BB+(lka)’; Stable Outlook
Amana Bank PLC
National Long-Term Rating affirmed at ‘BB(lka)’; Stable Outlook
(COLOMBO, Oct 03, 2017)

FILED UNDER: Sri Lanka

Markets

Sri Lanka stocks close down 0.60-pct, dragged by HNB and LOLC

Friday November 13, 2026 3:28 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed down on Friday, CSE data showed, with the benchmark All Share Price Index moving down 0.60 percent.

The ASPI was down 133.22 points at 22,024.18, while the more liquid S&P SL20 was down 1.06 percent, or 67.55 points, at 6,298.02.

The ASPI ended the week up 784.53 points from last Friday.

Positive contributors to the ASPI were Dialog Axiata (up 0.40 percent at 50.20 rupees), Distilleries Company of Sri Lanka (up 0.52 percent at 58.30 rupees), Aitken Spence (up 3.60 percent at 151.00 rupees), Ceylon Tobacco Company (up 1.05 percent at 1,828.50 rupees), and LOLC Finance (up 1.96 percent at 5.20 rupees).

Hatton National Bank (down 1.88 percent at 403.75 rupees), Richard Pieris and Company (down 6.21 percent at 27.20 rupees), LOLC Holdings (down 2.17 percent at 405.00 rupees), Sampath Bank (down 1.91 percent at 154.00 rupees), and Singer (Sri Lanka) (down 2.40 percent at 77.30 rupees) were top negative contributors.

Market turnover was 3.23 billion rupees. Capital goods led turnover with 869.21 million rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka MP slams budget speech for omitting Tamil national question

Friday November 13, 2026 2:56 pm

ECONOMYNEXT – A Sri Lanka legislator has voiced strong disappointment that the President’s budget speech failed to make a single mention of the Tamil national question.

“It is very unfortunate that in His Excellency the President’s speech, there has not been a single word mentioned about the Tamil national question. Not a single word,” Shanakiyan Rasamanickam said.

“A budget speech generally, is a policy direction of the government for the next year. The budget speech is not only a statement of the country’s fiscal position or the economy’s position. It is the country’s, the government’s, plan, or what the government plans to do the following year. That’s a policy statement.”

Former presidents would at least mention the Tamil question even if it was not resolved, he said.

Former President Ranil Wickremesinghe in his speech, in his policy statement, he would mention: “The Tamil national question must be resolved,” Rasamanickam said.

Former Presidents Maithripala Sirisena and Gotabaya Rajapaksa also mentioned that the national ethnic question must be resolved, he added.

“Every President, every country’s Head of State, in their policy statements, have acknowledged the fact that there is an unresolved national issue, the Tamil national question, that it needs to be resolved. Various governments have proposed various mechanisms; none of them have succeeded, but at least it was mentioned.”

This year’s budget made allocations for the Office of Missing Persons, and the Office of Reparations.

“But the domestic mechanism is a mechanism that the victim community has rejected. So you all are allocating money to a mechanism where the victim community is not going to be part of.”

Last year’s budget 1 billion was allocated to be spent on the Trincomalee and Jaffna airports.

“Where was that 1 billion for the Trincomalee and Jaffna airports spent last year?”

“The trajectory of this government, Honourable Deputy Speaker, is worrying to me. It’s really worrying to me. Because if the objective is to say that there is no Tamil national question, if the objective is to say that you all have resolved any ethnic issue that this country faced, then Honourable Deputy Speaker, then I think the Tamil people will teach this government a very, very, very harsh lesson in the future.” (Colombo/Nov13/2026)

Bonds & Forex

Sri Lanka sells extra Rs6.5bn Treasury bills after auction

Friday November 13, 2026 12:32 pm

ECONOMYNEXT – Sri Lanka has sold 6,500 million rupees of treasury bills offered on tap at an average rate of 9.95 percent, the public debt management office said, bringing the total of bills sold in the week to 85.562 billion rupees.

The issue offered 90 billion.

Total market subscription was 6.5 billion rupees.

The debt office sold a 12-month bill at 9.95 percent.

On Wednesday (11) the debt office raised 79 billion rupees of 3, 6 and 12 month bills after offering 90 billion.

The settlement date is November 13. (Colombo/Nov13/2026)

Construction and Real Estate

Access Engineering Sept quarter group net profit surges 200-pct to Rs4.75bn

Friday November 13, 2026 12:15 pm

ECONOMYNEXT — Sri Lanka’s Access Engineering PLC recorded a group net profit attributable to equity holders of Rs. 4.75 billion for the quarter ended September 30, surging 200 percent from Rs. 1.58 billion a year earlier, interim accounts showed.

Basic earnings per share rose to Rs. 4.08 for the September quarter, up from Rs. 1.58 previously.

Quarterly group revenue expanded 36 percent to Rs. 20.39 billion from Rs. 14.94 billion, underpinned by condominium property handovers — reflected in inventories dropping Rs. 7.69 billion since March to Rs. 35.71 billion — alongside strong automobile sales and steady civil engineering execution.

Cost of sales rose at a slower 27 percent to Rs. 14.34 billion, lifting gross profit by 64 percent to Rs. 6.05 billion and expanding gross margins to 29.7 percent from 24.7 percent.

Other income jumped 144 percent to Rs. 259.9 million, while administrative expenses rose 75 percent to Rs. 1.14 billion, leaving operating profit up 64 percent at Rs. 5.16 billion.

However, finance costs more than doubled, rising 107 percent to Rs. 1.18 billion on elevated group borrowings of Rs. 43.74 billion, partly offset by finance income climbing 302 percent to Rs. 42.2 million.

Share of results from equity-accounted investees rose 122 percent to Rs. 26.7 million, pushing pre-tax profit up 56 percent to Rs. 4.05 billion.

Income tax swung to a net reversal of Rs. 186.6 million from an expense of Rs. 804.1 million, boosted by deferred tax assets on unrelieved losses from a 100 percent enhanced capital allowance claimed by 60 percent-owned radiopharmaceutical subsidiary Access Medical Tracers (Private) Limited.

Total period profit rose 136 percent to Rs. 4.24 billion, with non-controlling interest declining 24 percent to Rs. 164.9 million following last year’s buyout of minority shareholders in Harbour Village (Private) Limited.

No separate exchange gain or loss was itemized in quarterly earnings, though foreign currency translation via associates recorded a Rs. 17.4 million loss in other comprehensive income, alongside USD 16.6 million in corporate guarantees.

Notes also flagged an expected Rs. 1.45 billion recovery from the terminated South Asia Commercial and Logistics Hub project, a Rs. 225 million post-quarter legal settlement already provided for, and a Supreme Court appeal over a 2011/12 PAYE tax ruling.

Group assets stood at Rs. 132.4 billion as of September 30, with net asset value per share at Rs. 46.70, as the Employees’ Provident Fund raised its stake to 5.69 percent.

Access Engineering shares closed at 80.00 rupees at the end of September and are currently trading around 85.80 rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka private sector says timely implementation of Budget 2027 key

Friday November 13, 2026 11:43 am

ECONOMYNEXT – Private sector body, The Ceylon Chamber of Commerce, said it was encouraged by the broad direction of Budget 2027, noting that it reinforces Sri Lanka’s commitment to economic transformation while maintaining policy continuity, macroeconomic stability, and fiscal discipline.

“This continuity is particularly important as the country seeks to transition from economic stabilisation to a more durable, investment-led growth trajectory.”

The chamber also noted several areas where the Budget could have placed greater emphasis to strengthen the country’s growth prospects.

“In particular, there is a need for a stronger focus on attracting Foreign Direct Investment (FDI), accelerating factor market reforms, particularly in land and labour, and fast-tracking public procurement reforms to improve the efficiency and speed of project implementation.

“More targeted and actionable proposals could have been introduced to unlock the potential of sectors with significant growth opportunities, including tourism, agriculture, IT/BPO and logistics.”

The chamber said the budget contains positive measures aimed at enhancing competitiveness, and external sector resilience, while presenting opportunities for focus on sectors that can accelerate growth.

“A number of the key structural reforms identified in last year’s Budget have been carried forward and strengthened, providing greater certainty and predictability to businesses and investors.

“These include the continued implementation of the Trade National Single Window (TNSW), the phased removal of para-tariffs, the rollout of the Digital ID framework, efforts to expand market access through new Free Trade Agreements (FTAs), the strengthening of one-stop-shop investment facilitation mechanisms, progress on Customs reforms, the expansion of Bandaranaike International Airport (BIA), enhanced financing support for SMEs, and reforms relating to the management of State-Owned Enterprises.”

The CCC said that more than 20 proposals submitted by it have been reflected in Budget 2027.

These include measures to strengthen investor facilitation through the establishment of a professionally managed investment promotion agency; continued efforts to improve trade facilitation and export competitiveness; the Government’s consideration of a successor programme with the International Monetary Fund (IMF); accelerated progress on key legislative reforms; the expansion of digital government services; and the promotion of cashless payments and broader digital adoption. The Budget has also captured several priorities relating to energy security, including the accelerated deployment of Battery Energy Storage Systems (BESS) and investments in fuel storage infrastructure, initiatives to optimize underutilized agricultural land, measures to support the expansion of the digital economy and the IT/BPO sector, and tax reforms to support exporters, including the acceptance of newly VAT-registered exporters as eligible exporters.

“The inclusion of these priorities reflects the value of sustained public-private dialogue and demonstrates increasing alignment between national policy objectives and the needs of a competitive, export-oriented economy.

“The priority now must be effective and timely implementation to translate policy commitments into investment, competitiveness, exports and sustainable growth.” (Colombo/Nov13/2026)