PABC confident of meeting minimum capital requirement organically – Official

By Azhar Razak

PABC Bank says it is confident of raising the additional capital requirement of around Rs. 500 million through organic growth and would not need to go for another Rights issue to fund the recently stipulated Rs. 3 billion capital requirement by end 2011.
Presently, PABC Bank, which has a core capital (Tier 1 capital) of Rs. 2.54 billion as at 30.06.2010, is the only private commercial bank that is short of the increased minimum capital stipulated by the Central Bank of Sri Lanka (CBSL).
“Given the existing strength of PABC Bank’s core capital adequacy ratio and the total adequacy ratio, we are very much confident of easily reaching the Rs 3 billion Tier 1 required through significantly expanding our business in the near future,” Director-CEO, PABC Bank, Claude Peiris told The Bottom Line in a recent interview.
The amended regulations of CBSL requires existing private commercial banks to increase their minimum capital to Rs 3 billion by end 2011, and further raise it to Rs. 4 billion by end 2013 and Rs 5 billion by end 2015.
He stated that, according to recent interim financials as at June 30, 2010, PABC Bank’s core capital adequacy ratio, calculated as a percentage of Risk Weighted Assets, stood at a healthy 19.24%, which is well above the minimum requirement of 5%, while total capital adequacy ratio, also calculated as a percentage of Risk Weighted Assets, was 19.91%, as opposed to the minimum requirement of 10%.
“The fact that we have maintained a higher capital adequacy ratio means that we will have a greater capability to deal with risk going forward, and therefore, we are already planning for a rigorous expansion drive,” he said, pointing further that the Bank will have sufficient time until end 2011 to meet the new requirement.
Expansion plans
According to Peiris, PABC Bank plans to open at least five branches around the island before the end of this year, which could take the bank’s Branch network to 42 by December 2010.
“We have plans to open branches in Embilipitiya, Matale, Ambalangoda, Batticaloa and Kalmunai before the end of this year,” Peiris said.
It has to be noted that PABC Bank went for a Rights issue last year to infuse fresh capital amounting to Rs 563 million, which had been needed at the time to meet a CBSL minimum capital requirement of Rs 2.5 billion by December 2009. In 2006, the CBSL had increased a minimum capital requirement for licensed commercial banks from 0.5 billion to 2.5 billion, to be met by end 2009. However, the deadline was later extended until June 30, 2010.
PABC Bank’s net profit for the June 2010 quarter fell 60% to Rs 83 million from a year earlier, despite lower loan loss provisions, as fee income fell steeply.
Listing requirement
Meanwhile, new regulations set out by the CBSL a fortnight ago, also requires unlisted locally incorporated private banks to list on the Colombo Bourse by end 2011. Union Bank and DFCC Vardhana Bank, at present, are the only two ‘locally incorporated’ private commercial banks that are not listed on the Colombo Stock Exchange. Union Bank is however in line with the ‘minimum capital requirement’, following the receipt of an Rs 2 billion private placement in May 2010. Prior to the private placement being received, the Bank’s equity stood at Rs 1.5 billion.
According to recent media reports, Union Bank is planning to go public at the end of this year or early next year, to comply with the CBSL directive.
However, Sri Lanka’s three largest banks, State-run Bank of Ceylon, Peoples Bank and National Savings Bank are not listed, and the CBSL has not requited them to do so. (AR)

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