Fitch affirms NDB ratings; withdraws NDB Housing Bank rating on merger

Fitch Ratings Lanka has affirmed the 'AA(lka)' National Long-term rating of National Development Bank Limited ("NDB") after its merger with NDB Housing Bank Limited ("NDBH"). The outlook on NDB's rating remains Stable. At the same time, the agency upgraded NDBH's National Long-term rating to 'AA(lka)' from 'AA-(lka)' (AA minus (lka)) and simultaneously withdrew the rating. These rating actions follow the September 4 announcement that NDB has completed its full ownership acquisition of its subsidiary NDBH. Both banks merged in September after obtaining the approval of the Central Bank of Sri Lanka. As such, the assets and liabilities of NDBH will be assumed by NDB after which NDBH would cease to exist.

National Development Bank of Sri Lanka initially held a 41.34% stake in NDBH together with the International Finance Corporation and HDFC Investments Limited of India, who each held a 15% stake in NDBH. By April 2006, NDB had acquired all the shares held by the minority shareholders. NDBH represented 3.4% of NDB's consolidated assets at June 2006.

The merger with NDBH is in line with NDB's objective of dismantling the group entities created due to legal restrictions placed on the activities of its predecessor, National Development Bank of Sri Lanka, and integrating those businesses, such as housing finance undertaken by NDBH, that fit into NDB's core banking activities. As a licensed specialised bank, NDBH was required to increase its core capital to Rs1.5 billion by December 2007, according to the enhanced minimum capital requirement stipulated by the Central Bank.