tate banking giant, Bank of Ceylon (BoC), is currently in talks with the Finance Ministry to obtain a Rs.10 billion cash infusion as early as the third quarter of this year, to improve its capital adequacy levels, sources revealed.
When inquired about the matter, BoC General Manager D.M.Gunasekara declined to comment.
BoC is believed to have been seeking government support since last year, as its capital adequacy levels have come under pressure due to unprecedented growth in its asset base.
This is not the first time the banking giant had to turn to the government for funding support in times of stress
In fact, senior officials of the bank had met wtih the Finance Ministry officials many a times since the early part of 2013 for possible funding support.
According to ICRA Lanka Limited Senior Analyst Sanjeev Manoharan, the capital infusion could take place either in the 3Q14 or if not before the end of the year.
ICRA Lanka, a unit of Moody’s, recently assigned ‘(SL)AAA’ rating to BoC with a ‘Stable’ outlook.
BoC’s relatively weak capital adequacy levels were first transpired in April last year when the banking giant came under scrutiny by international credit rating agencies over its faltering capitalization levels.
Meanwhile, the bank recently proposed to go for Rs.8 billion debenture issue, of which one of the main objectives was to strengthen its Tier II capital.
Last October too, BoC issued debentures to the tune of Rs.8 billion for similar reasons when its Tier II capital fell to 11.4 percent end December 2012 when the regulatory minimum was at 10 percent.
This is not the first time the banking giant had to turn to the government for funding support in times of stress. In 2002, BoC resorted to additional capital infusion from the Treasury.
It was only last week the United States based global credit rating agency Moody’s highlighted BoC’s Tier I capital adequacy ratio only at 8.9 percent as at end of March 2014, when Sri Lanka’s banking system’s Tier I ratio is at a high of 14.4 percent.
“The strong capitalization of the system as a whole belies some variance among individual banks. For example, Bank of Ceylon, the country’s largest bank, had a Tier 1 ratio of only 8.9 percent as of March 2014,” Moody’s Investors Service said.
ICRA Lanka, a unit of Moody’s, recently assigned ‘(SL)AAA’ rating to BoC with a ‘Stable’ outlook
The regulatory minimum for Tier I Capital Adequacy Ratio (CAR) is however at 5 percent.
Falling CARs had alarmed BoC’s top management and raising capital levels became a top priority for the then Chairman Dr. Gamini Wickramasinghe.
The banking giant will certainly have to rev up its capital adequacy levels to meet the forthcoming BASEL III rules which will come into effect from early 2015.
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