Seylan Bank's loss absorption capacity weak - Fitch

Despite being one of six systemically important domestic banks, former Ceylinco Group associate Seylan Bank's capacity to absorb future losses is still weak, according to ratings agency Fitch. This is due to the bank's high un- provisioned Non Performing Assets to Equity ratio of 56.19% as at end- June 2012, down from 59.39% in end-2011 and 158% in end-2009.

Also added by Fitch; " While most of this exposure is secured by fixed assets, recovery of such collateral has been slow".

This was revealed in a recent ratings announcement by Fitch, in which it upheld Seylan Bank PLC's " A-( lka)" na- tional long- term rating as well as its stable outlook.

At the same time, Fitch also noted; " Seylan's rating reflects Fitch's expectations of support from the state of Sri Lanka if required, given the bank's systemic importance. However, the state's ability to support is limited by the government's limited financial ability as evi- dent in its 'BB-'/Stable' rating".

Further, Fitch also opined that it did not expect " Seylan's national ratings- which are support-driven - to be downgraded. Rating upside over the medium term could be limited because the bank's standalone rating remains below its support- driven rating, despite improvements in its processes and controls since 2009".

Earlier part of the collapsed Ceylinco Group, Seylan Bank received two equity injections between 2009 and 2011, from the state and private investors, a total of Rs. 7.7 billion. As of end- June 2012, 32% of the bank's voting equity was stateowned.

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