Fitch Ratings-Colombo/Mumbai/Singapore-24 April 2008: Fitch Ratings Lanka has today affirmed the
National Long-term rating of Commercial Bank of Ceylon Ltd (CB) at 'AA+(lka)', reflecting the bank's
sustained profile amongst local commercial banks in terms of its strong franchise and good profitability,
as well as its relatively sound asset quality and capitalisation amongst banks in Sri Lanka. In addition,
Fitch has affirmed CB's Individual Rating at 'D' and Support Rating at '5'. Fitch has also affirmed the
'AA(lka)' rating of the bank's subordinated debentures and the 'AA-(lka)' (AA minus(lka)) rating
assigned to CB's preference shares. The Outlook remains Stable.
Though CB has traditionally been a dominant player in the corporate banking market, it is gradually
developing its presence in the consumer banking market. Consequently, the bank's portfolio at FYE07
was distributed equally among both these segments. However, Fitch believes the management's focus
on middle market corporates could result in the composition shifting in favour of the corporate segment
over the next three to five years. Loan growth dropped to 16% by FYE07 (compared to 27% in FY06
and a CAGR of 31% from FY02 to FY06), in response to high market interest rates and regulatory
measures aimed at curbing credit growth across the industry. CB's gross NPL ratio rose slightly to 2.9%
at FYE07 (2.7% at FYE06), but compares favourably against those of its peers and against its ratio of
6.9% at FYE02.
ROA (excluding preference dividends) increased to 1.6% in FY07 from 1.4% in FY06 (adjusted for
non-recurring gains on share disposals and costs of pension restructuring), supported by an expansion in
interest margins (FY07: 5.1% vs. FY06: 4.0%) and an improvement in cost efficiency (FY07: 38.2%
vs. in FY06: 43% (adjusted for the aforementioned one - off gains and costs)). CB's operations in
Bangladesh contributed 12% of net income in FY07 and 7% of total assets at FYE07.
CB raised LKR5.74 billion through a rights issue in H107 that boosted the equity/assets ratio to 8.7% at
FYE07 (FYE06: 6.7%) and the total capital adequacy ratio (CAR) to 13.71% at FYE07 (FYE06:
11.58%). Fitch believes that the capital raised may be deployed for regional business expansion or to
grow the existing Bangladesh operations where the bank has established a strong position among
foreign banks.
Established in 1969 but tracing its origins to 1920, CB is Sri Lanka's largest private bank and the thirdlargest
Licensed Commercial Bank in Sri Lanka, accounting for 10.7% of banking system assets at
FYE07. DFCC Bank ('AA(lka)') and other entities related to the Stassens group hold 29% and 12.5% of
CB's voting equity, respectively.
CB has a 1.78% shareholding in Fitch Ratings Lanka but is not involved in either the day-to-day
operations or credit rating reviews undertaken by Fitch Ratings Lanka.
