"Concerted recovery efforts and improved credit risk management have resulted in a steady improvement in the bank's asset quality and solvency position," Fitch said.
"The bank has halved its gross NPLs (non-performing loan) ratio to 5.
9 percent as at Dec 2005 compared to 13.2 percent in 2002."
Fitch said Sampath has improved loan loss reserves to 82.4 percent of NPL's as at December 2005 compared to 36.
8 percent in 2002, while its net NPL ration was 9.5 percent.
But Sampath may have to increase its investment in Union Bank (UB) which it now controls to meet higher minimum capital requirement set by the Central Bank of Sri Lanka.
"While Sampath Bank's balance sheet can accommodate a moderate increase in its investment in UB, a significant investment will impact Sampath Bank's own capitalisation levels and may require Sampath Bank to strengthen its equity position in order to maintain its current financial profile," Fitch said.
Loan growth has kept pace with the industry, while consumer loans was growing fast with consumer loans to the middle market accounting for 30 to 40 percent of new loans extended in 2004 and 3005.
"Consumer loans and loans to the middle market accounted for around 30 percent - 40 percent of new loans extended in 2004 and 2005," Fitch said.
Sampath's pre-provisioning return on assets was the higher among the large local banks at 3.
0 percent, in 2005, up from 2.9 percent in 2004 and cost to income ratio improved to 53 percent, which Fitch attributed to the widespread use of technology.
Sampath Bank, which started in 1987 has 83 branches, 95 automated teller machines and offers tele-banking and internet banking, and has as 30.8 percent stake in a boutique merchant bank in Bangladesh.
It had assets of RS88 billion as at Dec 2005, with a market share of around 6 percent.
-LBO Newsdesk: LBOEmail@vanguardlk.com