Fitch assigns 'AA(lka)' Rating to ComBank’s debentures

Fitch Ratings Lanka said last week it has assigned a 'AA(lka)' National Long-term rating to Commercial Bank of Ceylon Ltd.'s ("CB") issue of Rs 1,500 million unsecured subordinated redeemable debentures.

The agency also affirmed CB's National Long-term rating of 'AA+(lka)', the National Long-term 'AA(lka)' rating assigned to its existing subordinated debentures and the National Long-term 'AA-(lka)' (AA minus(lka)) rating assigned to CB's LKR1 billion preference shares.

The Outlook on the ratings is Stable. In addition, CB's 2001/06 preference shares of Rs 906.56 million have been paid in full.

The agency notes that the subordinated debentures, in terms of priority, will rank below deposits and all senior debt obligations, but will rank above ordinary and preference shares. Consequently, and in accordance with Fitch's criteria, the rating assigned for the subordinated debentures is one notch lower than CB's National Long-term rating of 'AA+(lka)'.

Overall, in 2005, CB turned in a good performance recording healthy growth in assets and profits as well as contained asset quality. The bank has also begun to derive attractive returns from its investments in Bangladesh, which accounts for 7% of its assets and contributed 25% to its net income in the first half of 2006 ("H1-06").

In terms of asset size, CB overtook Hatton National Bank and is now the largest private bank in Sri Lanka. CB achieved a 37% increase in net profits in 2005 which was driven by a 30% growth in loans, a 40% reduction in provisioning and an improvement in cost efficiency (cost/income was 47.5% in 2005).