The Finance Ministry has so far provided only Rs 1.5 billion out of a Rs 3.5 billion 'independent capital injection plan' to the People's Bank (PB), though all this money should have come by now, according to a press release by Fitch Ratings on the PB.
Fitch said the Ministry, in a letter to PB, committed to an independent capital injection plan to inject Rs 3.5 billion in three installments of Rs 1billion in October 2007, Rs 1billion in December and Rs 1.5 billion in 2008. "Fitch observes that the Ministry infused only Rs1.5 billion in December 2007 out of a total infusion of Rs 2 billion expected by end-2007. The PB management expects further infusions from the Ministry by end-2008," the release said.
Fitch said it was affirming PB's National Long-term 'A-(minus)(lka)' with a positive outlook. "The Long-term and Support ratings reflect the expected level of support available to the bank from the government due to its state ownership, systemic significance as the second largest bank in Sri Lanka, and strategic importance to the state. The individual rating reflects the weak capital position of the bank, which is inadequate to meet regulatory capital adequacy ratios (CARs)," it said.
Fitch said core CAR at the bank level, impacted by the operational risk charge under the Basel II framework effective in FY08, fell below the regulatory minimum of 5% to 4.5% at H108 from 5.3% at FYE07. Total CAR remained below the regulatory minimum of 10% at 6.8% at the bank level and 8.4% at the group level at H108. "PB relies on the 'Letter of Comfort' first issued in FY 1999 by the government undertaking to support the bank with equity to the extent required meet minimum capital requirements," the release said.
PB's gross non-performing loan (NPL) ratio decreased to 5.9% at FYE07 from 7.1% at FYE06 on account of focussed recoveries, but increased to 6.4% at H108 due to the challenging macroeconomic environment. The bank's net NPL/equity ratio improved to 17.9% at FYE07 from 24.5% at FYE06, mainly on account of an increase in equity, but declined to 22.5% at H108. Fitch expects asset quality and solvency to decline due to the more stringent regulatory classification of NPLs and the impact of prevailing economic conditions.