The outlook is stable.
The rating captures SDB’s high exposure to the retail and lower-end SME segments, its weak asset quality, and pressure on capitalisation due to strong loan growth.
The rating also reflects its above-average net-interest margins (NIM) stemming from its high-yielding loan book. The rating is constrained by SDB’s high costs, which ultimately limit profitability.
SDB’s loan book expanded by 17% in 1Q15, following growth of 44% in 2014 and 14% in 2013.
Its Fitch core capital ratio declined to 13.96% at end-March 2015 from 14.90% at end-2014 and 14.27% at end-2013 despite an equity infusion in late 2014.
This was primarily due to the rapid expansion of its loan book.
Fitch believes that continued high capital consumption could lead to further deterioration in capital ratios, if internal capital generation proves insufficient or if there is no capital injection.
Of the bank’s gross loans at end-2014, 95% were to retail and SME customers, which, in Fitch’s view, are riskier in nature due to their greater vulnerability to economic cycles, and could to lead to an increase in the reported NPL ratio, which stood at 3.5% at end March 2015 (2014: 3.8%, 2013: 5.1%), should economic conditions worsen.
Courtesy: Daily News 22 May 2015