According to Fitch Ratings, the BOC’s loan book has a high exposure to the state and state-owned entities (SOE) and while a sizeable portion of the exposure is state guaranteed, the resulting concentration risk is significant.
The rating agency’s comments came in a statement announcing that it had affirmed BOC’s Long-Term (LT) Foreign Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDRs) at ‘BB-’ with a Stable Outlook.
The agency has also affirmed BOC’s Viability Rating (VR) at ‘b+’ and its National LT rating at ‘AA+(lka)’ with a Stable Outlook.
“BOC’s LT IDRs are driven by the Government’s high propensity and limited ability to provide support to the bank under extraordinary situations,” Fitch said.
The rating agency said the state’s high propensity stems from BOC’s systemic importance as the largest bank in the country (accounting for nearly 20 per cent of banking system deposits and assets), its quasi-sovereign status, its role as a key lender to the Government and full government ownership, while the State’s limited ability is reflected in the ‘BB-’/Stable Sovereign rating.
BOC’s gross non-performing loan (NPL) ratio weakened to 2.8 per cent from 2.1 per cent in 2011 owing to one-off event risks such as floods and drought and the Maldives’ political turmoil.
Fitch said any change in Sri Lanka’s Sovereign rating or the perception of state support to BOC could result in a change in BOC’s IDRs and National Ratings.