Business Times

RAM assigns 'AA+' / Stable rating to Commercial Bank

Top Sri Lankan private bank Commercial Bank (COMB) recently received a long term "AA+," with stable outlook, and a "P1" short term financial institution rating from RAM, which was attributed to "its strong franchise; healthy financial performance, funding liquidity and capitalisation levels, as well as its adequate asset quality."

COMB is the third largest licensed commercial bank in Sri Lanka in terms of assets, as well as the country's largest private sector bank, with 12.47% of all industry assets. It is second only to state-owned Bank of Ceylon and People's Bank, which together account for 42.52% of total industry assets.
RAM also opined that, given its size, "COMB is systemically important to the Sri Lankan financial system. Furthermore, the fact that the Government of Sri Lanka ('GOSL') held a stake of 14.19% in the Bank through state-owned entities as at end-December 2010, increases the likelihood of support in times of need."

It also noted that "COMB’s asset quality is deemed adequate. Absolute gross non-performing loans ('NPLs') have been improving on the back of better collections, curtailed lending to high-risk segments and improving macroeconomic conditions." However, it also cautioned that its "view on asset quality is moderated by the unseasoned personal and retail loan portfolio which expanded Rs. 23.18 billion (or 108.73%) year-on-year ('y-o-y') in FYE 31 December 2010 ('FY Dec 2010')."

Also noted, the bank's "performance is viewed to be healthy. Its cost-to-income ratio is the best among its peers due to economies of scale and the use of low-cost delivery channels. These cost efficiencies have translated into a better return-on-assets ratio ('ROA') relative to its peers. Its ROA improved to 2.68% in FY Dec 2010 (FY Dec 2009: 2.36%), improving further to 3.11% in the 1st quarter of FY Dec 2011 ('1Q FY Dec 2011'). Prospectively, its performance is expected to ameliorate as the Group expands its margins by focusing on the high-yielding pawning, personal and small and medium enterprises ('SME') segments."

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