Fitch affirms DFCC Bank's 'AA(lka)' National Rating

Fitch Ratings said last week it was affirming the 'AA(lka)' National Long-term rating assigned to DFCC Bank (DFCC). At the same time, the agency has affirmed the 'AA(lka)' National Rating assigned to the bank's senior debentures and the 'AA-(lka)' (AA minus(lka)) National Rating assigned to its subordinated debentures. The Outlook on the ratings is Stable.

Fitch said DFCC's ratings reflect its strong financial performance, good asset quality and strong capital position. The ratings also take into account the bank's high exposure to riskier long-term project lending and less diversified funding base.

DFCC's profitability as measured by return on assets remained strong at 2.6% in FYE07. The contribution from its 29%-owned associate, Commercial Bank of Ceylon Ltd (CB, 'AA+(lka)'), was a substantial 21% of FY07 net profit, compared to the contribution from other group entities, including its 95%-owned subsidiary DFCC Vardhana Bank Ltd (DVB, 'AA-(lka)' (AA minus(lka)), which was 7%.

The Central Bank of Sri Lanka (CBSL) issued a directive that requires DFCC to decrease its voting rights in both CB and DVB to 15% by 2008 and 2012, respectively. As per the directive, failure to do so would result in DFCC's voting rights being reduced to 10%. However, Fitch does not foresee a significant impact to the bank's profitability in either event, the statement from the rating agency said.