Citibank NA-Colombo Branch's (CitiSL) has transferred its exposure on the recent oil hedging issue to Citibank NY in May this year ‘thereby mitigating any possible deterioration to the (Colombo) bank's capital and liquidity positions,’ according to a report by Fitch Ratings Colombo.
It said the non-payment by a counter-party on oil hedging derivative contracts in December 2008 saw full dues on these transactions at FYE08.
As such, the loan book and the gross NPL ratio increased sharply at FYE08. By end-June 2009 (H109), the loan book had been adjusted for the above exposure contracted by 33% and the gross NPL ratio stood at 0.7% (FYE07: 0.5%).
Fitch said it affirmed the Colombo branch’s National Long-term rating at 'AAA (lka)' and said the outlook of the rating remains stable.
CitiSL follows the group's global credit policy, with loans largely limited to multinationals, the government of Sri Lanka and state owned entities, and the larger local corporates.
Due to the higher concentration in its loan book and the shorter tenure of loans (typically under one-year), its loan portfolio is subject to some fluctuation upon loan repayment. At end-December 2008 (FYE08), the top 20 loans accounted for 93.1% of total loans.
Despite concentration risk however, the bank's target clientele constitute relatively better credits, and its zero exposure to the consumer segment has meant that credit risk has historically remained low.
Fitch said capital has historically remained high, boosted by high levels of profitability with no profit repatriation to the head office over the past 10 years.
Nevertheless, while CitiSL maintained capital adequacy ratios above the minimum requirement at FYE08, they were impacted by the oil derivative contracts which required a 150% risk weight owing to its classification as an NPL. After the transfer of these dues, the Tier 1 and Total capital adequacy ratios stood at 23.5% and 23.9%, respectively, at H109.
CitiSL's low NPLs at H109, together with full provisions on these NPLs, meant that the net NPL/equity ratio was zero at H109. Fitch said it further expects the bank's capital to remain strong, boosted by high profits and a low-risk appetite.
CitiSL is the third largest foreign bank in Sri Lanka and operates through a single branch. |
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