Capital Needs

July 8, 2010 (LBO) - Merchant Bank of Sri Lanka, a unit of state-run Bank of Ceylon, may need to inject new capital into a troubled savings bank and insurance firm it bought during an economic downturn, a rating agency said. RAM ratings confirmed Merchant Bank of Sri Lanka's (MBSL) 'AA-' domestic long term rating and 'P1' short term rating with a stable outlook on the strength of its parent and its willingness to support it.

MBSL's ratings are supported by "solid parental backing" with the Bank of Ceylon "consistently" showing support through loans and equity injections, RAM said. In December 2009 it has injected 437.91 million rupees through a rights issue.

Bank of Ceylon, Sri Lanka's largest commercial bank with 21.

5 percent of industry assets, had a 72.
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14 percent stake in MBSL. MBSL was relatively small with 4.

99 percent of specialized leasing company assets.

RAM also confirmed the 'AA-' rating on a 300 million rupee private debenture and a 500 million rupee public debenture, both of which are unlisted. MBSL bought and rebranded a licensed savings bank and insurer during a bank run in 2009.

"Going forward, we are concerned about the funding commitments that MBSL may have with regard to its recently acq