The combined force becomes the fifth largest bank in the country with an asset base totaling Rs. 60 billion.
State-run Bank of Ceylon and People's Bank currently control 55 percent of Sri Lanka's banking assets, followed by Commercial Bank of Ceylon and Hatton National Bank.
Fitch believes that the merger would now allow NDB to transform itself from a development financial institution to a universal bank.
The new NDB Bank Ltd would be able to leverage on its existing synergies to cross sell products and optimise capital utilisation. The new entity would also have a more diversified income profile.
Consequently the AA-(sri) national rating assigned for the implied long term unsecured senior debt of NDB Bank and the A+(sri) rating assigned to the 2001/2006 subordinated debentures of NDB Bank have been withdrawn, as the assets and liabilities of NDB Bank will be transferred to NDB Ltd with effect from Aug.1, 2005.
There after NDB Bank would be voluntarily wound up.
Historically, NDB has been highly capitalised with a total capital ratio of over 20 percent.
However, with the recent acquisitions of Eagle Insurance and NDB Bank in 2004, the ratio had fallen to 15.39 percent as at June 30, 2005 as these investments are deducted in arriving at the regulatory capital.
The capital ratio for the merged bank is expected to be in the region of 15.0-16.0 percent, compared to the minimum regulatory requirement of 10.0 percent.
The present capital ratio remains comfortable in light of the strong asset quality and would be sufficient to support asset growth in the medium term.
Beyond that, NDB Ltd may need to raise additional capital depending on loan growth and earnings retention.
On a group level the NDB group reported a total capital ratio of 18 percent as at June 30, 2005.
Fitch Ratings Lanka Ltd is a joint venture between Fitch Ratings, USA, International Finance Corporation Washington, Central Bank of Sri Lanka and several other leading local financial institutions. Fitch Ratings, USA is one of the three global full service credit rating agencies.
-LBO Newsdesk: LBOEmail@vanguardlk.com
The newly merged NDB Bank has retained its AA (sri) rating for its long-term unsecured senior debt from Fitch Ratings Lanka, the credit rating agency said Wednesday.