Fitch Ratings has assigned Lankaputhra Development Bank Limited (LDB) a National Long-Term Rating of ‘BBB-(lka)’. The outlook is positive.
LDB’s National Long-Term Rating reflects Fitch’s expectation that the bank would receive extraordinary support from the Sri Lankan sovereign, if required.
Fitch believes the sovereign’s propensity to extend support to the bank stems from the state’s 100% direct holding and LDB’s development banking role in supporting the state’s initiatives for micro, small and medium-scale industries.
However, Fitch sees the potential for state support for LDB as being much lower than for the country’s larger state-owned banks.
The sovereign’s ability to provide support is reflected in Sri Lanka’s ‘B+’/Stable rating. The positive outlook on LDB’s rating reflects our expectation that sovereign support is likely to increase if the bank’s operations were combined with those of a larger entity, thereby becoming of greater systemic importance.
Fitch believes smaller state banks such as LDB could be part of the government’s broader consolidation agenda amid enhanced minimum capital requirements.
LDB is one of the smallest banks in Sri Lanka with a market share of less than 0.1% of the banking sector’s total assets, loans and deposits as of end-September 2017. It has eight branches across seven provinces and mainly relies on non-deposit funding.
LDB was established in 2006 as a licensed specialised bank and had assets of Rs 9.2 billion at end-September 2017.
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