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Sri Lanka Merchant Bank AA-/P1 rating confirmed
MBSL is a 72.14%-owned subsidiary of BOC, i.e. Sri Lanka’s largest licensed commercial bank (“LCB”) in terms of assets. However, MBSL remains a small specialised leasing company (“SLC”), accounting for only 4.85% of the industry’s asset base as at end-December 2010. Despite its small size, MBSL’s ratings are supported by its parent’s financial backing. BOC has consistently demonstrated its support via equity injections and funding lines; it infused LKR 347.91 million into MBSL by way of a rights issue in December 2009, and has to date provided the Company with LKR 600 million of unutilised funding lines. MBSL has 3 subsidiaries, i.e. Merchant Credit of Sri Lanka (“MCSL”), MBSL Savings Bank and MBSL Insurance Ltd (“MBSL Insurance”), as well as an associate company, Lanka Securities Pvt Ltd (“LSL”) (collectively, “the MBSL Group”). The MBSL Group has an asset base of LKR 14.44 billion.
While the MBSL Group’s gearing ratio had increased to 1.86 times as at end-December 2010 (end-December 2009: 1.31 times), its capitalisation remained strong. Nonetheless, we are still concerned that MBSL’s funding commitments to its subsidiaries could strain its balance sheet. To date, capital infusions required by its subsidiaries are estimated to amount to LKR 2.63 billion, out of which LKR 2.27 billion is meant to meet MBSL Savings Bank’s minimum capital requirement of LKR 2.5 billion by end-December 2012. That said, even if the entire amount were to be debt-funded, we expect the MBSL Group’s gearing ratio to peak at just over 2 times, i.e. still strong compared to its peers.
The MBSL Group’s liquidity position is deemed moderate. It has been tilting towards short-term financing over the past year, with MBSL accounting for 89.31% of the amount as at end-December 2010. While this has exacerbated the gaps in the short-term asset-liability maturity mismatch (“ALMM”) buckets, our concerns are somewhat mitigated by its LKR 1 billion of standby lines and the financial flexibility derived from its parent. Going forward, MBSL will be able to tap public deposits once it has secured its LSB status; this will reduce its dependence on borrowings.
MBSL is a 72.14%-owned subsidiary of BOC, i.e. Sri Lanka’s largest licensed commercial bank (“LCB”) in terms of assets. However, MBSL remains a small specialised leasing company (“SLC”), accounting for only 4.85% of the industry’s asset base as at end-December 2010. Despite its small size, MBSL’s ratings are supported by its parent’s financial backing. BOC has consistently demonstrated its support via equity injections and funding lines; it infused LKR 347.91 million into MBSL by way of a rights issue in December 2009, and has to date provided the Company with LKR 600 million of unutilised funding lines. MBSL has 3 subsidiaries, i.e. Merchant Credit of Sri Lanka (“MCSL”), MBSL Savings Bank and MBSL Insurance Ltd (“MBSL Insurance”), as well as an associate company, Lanka Securities Pvt Ltd (“LSL”) (collectively, “the MBSL Group”). The MBSL Group has an asset base of LKR 14.44 billion.
While the MBSL Group’s gearing ratio had increased to 1.86 times as at end-December 2010 (end-December 2009: 1.31 times), its capitalisation remained strong. Nonetheless, we are still concerned that MBSL’s funding commitments to its subsidiaries could strain its balance sheet. To date, capital infusions required by its subsidiaries are estimated to amount to LKR 2.63 billion, out of which LKR 2.27 billion is meant to meet MBSL Savings Bank’s minimum capital requirement of LKR 2.5 billion by end-December 2012. That said, even if the entire amount were to be debt-funded, we expect the MBSL Group’s gearing ratio to peak at just over 2 times, i.e. still strong compared to its peers.
The MBSL Group’s liquidity position is deemed moderate. It has been tilting towards short-term financing over the past year, with MBSL accounting for 89.31% of the amount as at end-December 2010. While this has exacerbated the gaps in the short-term asset-liability maturity mismatch (“ALMM”) buckets, our concerns are somewhat mitigated by its LKR 1 billion of standby lines and the financial flexibility derived from its parent. Going forward, MBSL will be able to tap public deposits once it has secured its LSB status; this will reduce its dependence on borrowings.
