Sri Lanka micro lenders on rating watch over merger move with 30-pct dud loan state bank

December 01 (LBO) – Six Sri Lankan regional development banks were put on a ratings watch on Friday, rating agency Fitch Lanka said, following government plans to merge with a newly set up state bank with 30 percent dud loans. Fitch intends to resolve the Rating Watches within a period of six to nine months as soon as sufficient information is available on the exact merger mechanisms, management structure, and the business model that will be pursued by the merged entity.

Fitch put five regional banks which give small loans to rural entrepreneurs on a ‘Rating Watch Evolving’, which indicates that the rating may change in any direction after the merger, while one bank with weak capital was put on Rating Watch Positive.

These rating actions follow the announcement by the Government of Sri Lanka in its budget proposals for 2007 to merge these six RDBs with two newly-established state banks, Lankaputhra Development Bank (LDB) and SME Bank (SMEB), to form one combined entity under LDB, Fitch said.

• Rajarata Development Bank - 'BBB+(lka)', Rating Watch Evolving
• Ruhuna Development Bank - 'BBB+(lka)', Rating Watch Evolving
• Wayamba Development Bank - 'BBB+(lka)', Rating Watch E