Ratings agency RAM has maintained its long term "AA-" and short term "P1" financial institution ratings for Bank of Ceylon-subsidiary Merchant Bank of Sri Lanka (MBSL). At the same time, RAM also held up the "AA-" long term rating for MBSL's Rs. 186.6 million unsecured, unlisted 2007 / 2011 public debentures, and assigned a "P1" short term rating for MBSL's proposed Rs. 500 million in unsecured 2010 / 2011 commercial paper. Further stated, all long term ratings for MBSL had stable outlooks.
According to RAM's statement; "All the ratings are supported by MBSL’s strong capitalisation and the financial flexibility it derives from its parent, Bank of Ceylon ('BOC'). On the other hand, the ratings are weighed down by the company’s weak asset quality albeit we note that it had improved during the year."
RAM also noted that "BOC has consistently demonstrated its support via equity injections and funding lines; it infused Rs. 347.91 million into MBSL by way of a rights issue in December 2009, and has to date provided the company with Rs. 600 million of unutilised funding lines."
Further indicated, "MBSL intends to convert itself into a licensed specialised bank ('LSB') by merging with [its Merchant Credit of Sri Lanka subsidiary], a registered finance company ('RFC'), and Ceylease Financial Services Ltd ('Ceylease'), another SLC owned by BOC. As an LSB, the Company will be permitted to accept public deposits, which SLCs are not permitted to do. While the Central Bank of Sri Lanka’s ('CBSL') approval has been obtained for the merger, the company has yet to secure LSB status. MBSL is allowed 1 year from the CBSL approval date to complete the merger process, i.e. until May 2012. To this end, the operational integration of the 3 entities has yet to be carried out. RAM Ratings Lanka views that the merger will not have any immediate rating impact on MBSL’s ratings." (JH) |
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