Credit Quality

Sept 27, 2010 (LBO) - RAM Ratings Lanka has confirmed the long term rating of ˜A’ for Lankaputhra Development Bank (LDB) but lowered its outlook to negative from stable on a rise in bad loans, a statement said. The long- and short-term financial institution ratings, confirmed at A and P1, are largely upheld by the bank’s state ownership and its importance to the government's national development agenda.

The ratings also reflect the bank’s sound liquidity position and sturdy capitalisation levels, the rating agency said.

"Nonetheless, the outlook on the long-term rating has been revised from stable to negative, owing to the influx on non-performing loans (NPLs)," it said.

It also reflects the fact that frequent changes within the management hierarchy hinder the bank from executing a clear strategy.

LDB was set up in 2006 with the objective of strengthening the small and medium-scale enterprises (SMEs) sector.

The bank focuses on providing funding to start-up SMEs, a segment overlooked by other financial institutions due to its inherently higher risk, RAM Ratings said.

LDB merged with two other state-backed development finance institutions in 2008.

Following state election