Fitch Upgrades Sanasa Development Bank to 'BB(lka)'

Fitch Ratings Lanka upgraded the National Long-term rating of Sanasa Development Bank Ltd (SDB) to 'BB(lka)' from 'BB-(lka)' (BB minus(lka)) on Wednesday. The upgrade reflects the materialisation of SDB's planned capital program, and is supported by the bank's good profitability and asset quality, albeit constrained somewhat by the risks inherent to the microfinance (MFI) segment, according to a press release by Fitch Ratings. It said the Outlook was stable.

In 2006, the Central Bank of Sri Lanka (CBSL) increased the minimum capital requirement for licensed specialised banks to Rs.1.5 billion, with a phased deadline, i.e. 50% of the shortfall at 2008 and full compliance by 2009. To achieve this, SDB has to date raised Rs. 330 million of capital from the Thrift and Credit Cooperative Societies (TCCS) Movement, as well as from local and foreign institutions. In addition, the management informed Fitch that it has secured further institutional commitments of approximately Rs.550m of capital to be infused by 2009. SDB's equity as at 2007 was Rs.840m.

Loan growth in 2007 was high at 48% (51% in FY06), mainly driven by housing loans and MFI loans. SDB is primarily involved in MFI-based lending routed through the TCCS Movement and the bank's branch network, which accounted for 41% of the total loan portfolio as at last year. Housing loans and leases accounted for 30% and 17% respectively. SDB also had a sizeable pawn broking loan segment (gold-backed loans) which accounted for 12% of loans.

The bank's Non Performing Loan(NPL) ratio improved to 3.9% at 2007 from 4.2% at 2006 and Net NPL/Equity ratio remained steady at 21.6%. However, Fitch notes that due to recent high loan growth, these ratios could deteriorate as the portfolio seasons.