Moody’s has also assigned the bank with a CR Assessment of Ba3(cr). The assigned long-term foreign currency deposit rating is B2 and is constrained by the foreign currency deposit ceiling for Sri Lanka.
At the same time, Moody’s has assigned a baseline credit assessment (BCA) of b1. All the ratings have a stable outlook.
The B1 issuer ratings reflect Sampath Bank’s baseline credit assessment (BCA) of b1. The b1 BCA is driven by the bank’s (1) strong track record in asset quality, (2) high profitability metrics, (3) healthy
funding and liquidity profiles relative to its peers, and (4) weak capital levels The BCA of the bank is constrained by the Sri Lankan government’s sovereign rating of B1.
Sampath Bank has healthy asset quality metrics, with a gross nonperforming loan (NPL) ratio of 1.71%, loan loss coverage of 120% at end September 2015, and compares well with other Sri Lankan banks.
At the same time, our evaluation of the bank’s asset quality also factors in its high credit concentration – a structural feature of the banking system in Sri Lanka – as well as strong growth in the non-pawning part of the loan book, which recorded a 28% compound annual growth rate over the last two years.
Profitability is the bank’s key credit strength, with its average ROA over the last three years staying at 1.4%. In addition, there is reasonable potential for profitability to further increase. The bank has reported a much higher cost-income ratio ( cost component includes financial services value added tax and nation building tax), than peers, at 59% for 9m2015. As operating revenue growth picks up in line with loan growth, cost-income ratio may trend down. This would increase profitability.
The bank’s capital levels are low, with a common equity tier one (CET1) ratio of only 7.98% at end-September 2015. In this respect, it is lower than its peers in Sri Lanka, as well as other similarly rated banks.
Moody’s expects a capital raise over the next 18 months, as the bank needs to increase its capital levels to comply with Basel 3 norms. However, even with the capital raise, we expect the bank’s capital levels to be just above the minimum norms.
The bank has a strong retail funding franchise, with a 48% CASA ratio at end-September 2015. Overall liquidity levels are also adequate, with its loan to deposit ratio (LDR) at 95%. On the other hand, a key weakness for the bank is the funding of its foreign currency book, where its LDR stood at 135%.
The bank’s long-term ratings are at the sovereign rating for Sri Lanka and thus, the ratings are unlikely to receive a further upgrade unless Sri Lanka’s sovereign rating is upgraded.
Sampath Bank’s BCA could be raised if Sri Lanka’s sovereign rating is upgraded. Conversely, the bank’s BCA could be lowered due to the following: (1) a material decrease in the Moody’s adjusted capital adequacy ratio (tangible common equity/risk-weighted assets); (2) a tangible deterioration in asset quality or risk-adjusted profitability; and (3) a downgrade of Sri Lanka’s sovereign B1 rating, which will also result in a downgrade of Sampath Bank’s B1 deposit rating.
The principal methodology used in these ratings was Banks published in January 2016. Please see the Ratings Methodologies page on www.moodys.com for methodology.
Headquartered in Colombo, Sampath Bank PLC had total assets of LKR503 billion (USD3.5 billion) at end September 2015. (Colombo Gazette)