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Fitch doubts earnings alone will put PABC on top of minimum capital

6 September 2017 10:12 am - 0     - {{hitsCtrl.values.hits}}


Pan Asia Banking Corporation PLC (PABC) now operates with a single mission of meeting its minimum regulatory capital base of Rs.10 billion by January 1, 2018 to make good on the promise it made to the regulator a couple of years ago since it pledged its commitment to a capital augmentation plan comprising of both fresh equity and retained earnings.   

Other players who failed to meet the original deadline on January 1, 2016 bought more time from the regulator to meet this requirement but have now met the requirement well before the 2018 deadline. 
The promoters of Cargills Bank Limited infused fresh equity last year while Amana Bank PLC recently concluded a rights issue subscribed by one of its major shareholders in the Middle East, which helped them to surpass the Rs.10.0 billion milestone in core capital put forth by the regulator in the latter part of 2014.  

Hence, Pan Asia Bank should now be doing all it could to avoid becoming the black sheep in the industry in terms of capital, said a banking sector analyst.   Even after Pan Asia Bank raised Rs.2.1 billion through a rights issue this March, Fitch Ratings this week cast doubts over the ability of the bank to hit the threshold by the regulatory deadline from retained earnings alone. 

By June 30, 2017, Pan Asia Bank had a Tier I (Core) capital of Rs.8.7 billion, requiring a minimum of another Rs.1.3 billion after tax profit to meet the regulatory requirement in capital.

For the 1H17, the bank with an asset base of little under Rs.130 billion, posted a net profit of Rs.616.8 million.  This means, the bank needs to make a minimum of another Rs.683 million after-tax profit for the 2H17. 

“PABC is required to increase this further to Rs.10 billion by January 1, 2018. Fitch believes that the bank’s earnings retention alone is not likely to be sufficient to achieve the capital standards, despite improved profitability”, the rating agency said in a rating update on the bank’s outstanding Rs.3.0 billion subordinate debt set to mature in 2019.  Fitch rated the bank’s debentures at ‘BB+’, one notch below the issuer’s rating of ‘BBB-‘ with a ‘Stable’ outlook due to the instruments’ quality of subordination to senior unsecured creditors. In Sri Lanka regulatory forbearance is commonplace whenever an industry player fails to meet a regulatory requirement on time. 

But in this case, it is less likely that the regulator be lenient as Pan Asia Bank remains the only exception. 

But the recent developments might prompt the Monetary Board to consider a plea for a very short deferment on the deadline. 

But the bank remains confident it could meet the requirement by the stipulated date as its growth prospects remain strong. 


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