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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Fitch lifts PABC’s Outlook to Positive from Stable

Fitch lifts PABC’s Outlook to Positive from Stable

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Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
PABC rating outlook lifted by Fitch
Fitch Ratings Lanka has lifted Pan Asia Banking Corporation PLC’s Outlook to Positive from Stable.
The agency has simultaneously affirmed PABC’s National Long-Term Rating at ‘BBB(lka)’ and its subordinated debentures at ‘BBB-(lka)’.

Fitch notes, that the revision of the Outlook reflects ongoing structural improvements since 2009 which, in Fitch’s view, have brought PABC’s credit metrics closer in line with those of higher-rated peers.

It says, the ratings also reflect PABC’s small but expanding franchise in terms of its market share of banking sector assets, loans and deposits, a high net non-performing loans /equity relative to higher-rated peers, and a developing funding profile.

Below is the full rating release issued by Fitch Ratings

Fitch Ratings-Colombo/Seoul/Singapore-22 October 2012: Fitch Ratings Lanka has revised Pan Asia Banking Corporation Plc’s (PABC) Outlook to Positive from Stable. The agency has simultaneously affirmed PABC’s National Long-Term Rating at ‘BBB(lka)’ and its subordinated debentures at ‘BBB-(lka)’.

The revision of the Outlook reflects ongoing structural improvements since 2009 which, in Fitch’s view, have brought PABC’s credit metrics closer in line with those of higher-rated peers. The ratings also reflect PABC’s small but expanding franchise in terms of its market share of banking sector assets, loans and deposits, a high net (unprovided) non-performing loans (NPLs)/equity relative to higher-rated peers, and a developing funding profile.

A demonstrated ability in maintaining its financial profile relative to higher- rated peers, for instance through better managing a likely deterioration in its credit metrics in a challenging economic environment, could result in an upgrade of its ratings. Conversely, a failure to do so could result in the Outlook being revised to
Stable, while a notable deterioration in asset quality, capitalisation or funding profile relative to domestic peers could result in a rating downgrade.

Rapid loan growth to-date has led to continued decline in capitalisation. Nonetheless, Fitch believes that PABC could meet the next interim target at end-2013 of LKR4bn regulatory minimum core capital requirement and maintain adequate capitalisation on the back of healthy profits and moderate loan growth. Management has indicated that internal earnings retention is likely to remain the main source of equity accretion.

Fitch expects PABC’s lending growth to be capped at the regulatory ceiling of 23% in 2012 if such growth is also financed with offshore funding. Lending growth would otherwise be capped at the lower ceiling of 18%.

The bank recorded a slower 17% increase in loans in H112, in sharp contrast to the above-sector average growth of 62% and 85% over the last two years. The loan book is largely exposed to SMEs and individuals/retail customers which have been the bank’s traditional focus.

PABC’s gross NPLs (3.3% of total loans at H112) improved to levels that are closer to those of higher-rated peers, reflecting the results of implemented credit controls, a more benign credit environment, and benefits from its significant exposure to gold-backed loans (20% at end-2011) which have historically seen lower NPLs. Nevertheless, net NPLs/equity at end-H112 remained high at 26.4%. Pressure on asset quality could stem from SMEs and individuals/retail customers who tend to be more sensitive to economic cycles.

PABC’s current and savings accounts (CASA) as a share of deposits of 22% remained close to that of medium-sized commercial banks. Deposits remain the main source of funding. The loans/deposits ratio remained high at 97.5% at end-H112 but could decrease as the deposit base grows through branch expansion.

PABC is a small commercial bank, accounting for 1.1% of banking sector assets at end-2011. Its major shareholder is K.D.D. Perera who directly holds 29.9%. PABC has 73 branches.

http://www.news360.lk/business-finance/fitch-lifts-pabc%E2%80%99s-outlook-to-positive-from-stable

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