Capital Boost

Oct 05, 2007 (LBO) – Sri Lanka's state-owned Peoples' Bank (PB) is on track to get a credit upgrade if its capital is boosted to regulatory requirements, Fitch Ratings Lanka has said after confirming the bank's A- (lka) rating. The bank was in line to get a billion rupee capital injection from the state in October, a further billion rupees in December more next year, but its own capital generation was hit by high taxes, the rating agency said.

Fitch said the outlook on the rating remained positive and it reflected the support available to the bank from the government as its shareholder and the importance of the bank to the Sri Lankan financial system.

"As such, Fitch has also affirmed PB's Support Rating at '4'," the rating agency said.

Capital Shortage

"Despite capital infusions and significantly improved profitability, the equity position of the bank is still weak and inadequate in meeting regulatory capital adequacy ratios, which is reflected by the affirmed Individual Rating of 'E'."

The state bank was hard hit by years of mis-directed overstaffing politically directed lending, but analysts say in recent years had been seen as model bank which cleaned up its balance sheet, improved its operat