Fitch affirms Nations Trust Bank PLC at 'A(lka)'

Fitch Ratings Lanka has affirmed the National Long-term issuer rating of Nations Trust Bank PLC (NTB) at 'A (lka)', reflecting its improved profitability, good asset quality and moderate asset base. The outlook on the rating is stable, said Fitch.

The bank experienced a substantial loan growth of 73% during the financial year (FY) 2006, though over a small base, increasing its loan book by Rs 1.7 billion, although 33% of the growth stemmed from loans acquired from Mercantile Leasing Limited (MLL), a specialised leasing company which NTB acquired in January 2006.

Leases are mostly in the small and medium enterprise (SME) segment, accounting for 19% of the loan book at FYE06 and are secured by the leased assets. Consumer loans represented 33% of NTB's loan book at FYE06, and consisted of personal loans (12%), credit card advances (9%) and housing loans (6%). In this segment, mid to high income customers are generally sought after. The corporate segment is dominant and constituted 46% of the bank's loan book at FYE06.

NTB's profitability, measured by return on assets (ROA), increased to 0.9% in FY06 from 0.5% in FY05, supported by strong growth in loans and healthy net interest margins but dipped to 0.8% (annualised) in H107 due to higher interest costs of mobilizing funds.

Fitch notes that while NTB's solvency compares favourably with peers, it nevertheless would come under further stress unless NPL issues are contained and the equity position is augmented, especially considering the risks posed by the moderately high unsecured portion of the loan book.