Lankaputhra Development Bank (LDB) is expected to play a pivotal role in the Sri Lankan government’s national development agenda according to RAM Ratings Lanka which assigned respective long and short term financial institution ratings of A and P1 to LDB. In a press release this week, RAM stated that the ratings are primarily based on the Bank’s state ownership and its strategic importance vis-à-vis the government’s economic development agenda. The ratings are however constrained by LDB’s short operating history and large risk appetite.
Given LDB’s broad vision to create and enhance entrepreneurial talent in the country, RAM stated that its asset quality is expected to take second place. Despite its unseasoned portfolio, the Bank’s gross non-performing loan (NPL) ratio (on a 3 month classification basis) deteriorated swiftly to 38.96% as at end August 2009. RAM noted that this had been primarily due to the inherent concentration risk in LDB’s lending portfolio. The Bank also inherited NPLs following its earlier mergers. About 25% of its NPLs as at end August 2009 stemmed from such legacy loan portfolio. Over the longer term, RAM stated that this ratio is expected to ease as concentration risk becomes more diluted due to portfolio expansion.