State Bank of India, Bangladesh Operations - Credit Rating Agency ...

CRAB Ratings
Banks
Rating Report [SURVEILLANCE]
State Bank of India, Bangladesh Operations
Rating Outstanding (26 November 2008)
Long Term : AA 3
Short Term
: ST-1
Validity : 30 June 2009
Previous Rating (30 June 2007)
Long Term : AA 1
Short Term
: ST-1
Analyst:
Nur Elahee Molla
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-
Financial Analyst
nur_elahee@crab.com.bd
Financial Highlights
BDT in Million
2007 2006
Loans & Advances 5,919.56 4,026.77
Non Performing Loan 214.86 3.79
Deposits 6,172.28 5,236.72
Investment 743.49 754.18
Net Interest Income 209.33 153.68
Non Interest Income 313.43 252.96
Net Profit After Tax 42.50 147.86
PTP % of Avg. Asset 2.98% 4.80%
Net Interest Margin 3.74% 3.78%
Capital Adequacy Ratio 23.06% 23.33%
Gross NPL Ratio 3.63% 0.09%
NPL Coverage Ratio 133.30% 1,600.09%
Net Loan to Deposit Ratio 93.30% 76.86%
300
250
200
150
100
50
-
2003 2004 2005 2006 2007
Profit before tax SBI
ROAE of SBI
2001 2002 2003 2004 2005 2006 2007
30%
25%
20%
15%
10%
5%
0%
10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Total loan NPLs NPL Ratio Power (Total loan)
1.0 RATIONALE
Credit Rating Agency of Bangladesh
Limited (CRAB) has downgraded the Long
Term rating of State Bank of India
(Bangladesh operations) to “AA3”
(Pronounced double A Three) from
“AA1” and retained the Short Term of
“ST-1” in view of the performance of the
Bank for the business year 2007.
The following factors contributed to the
downgrade of ratings:
Non-performing loan increased to
BDT 214.86 million (3.63% of
portfolio) in 2007 from BDT 3.79
million (0.09% of portfolio) in
2006.
Net profit declined to BDT 42.50
million in 2007 from BDT 147.86
million in 2006 by 71.25%.
High concentration risk.
Modest risk management and
control system.
Commercial banks rated “AA3” in the long
term are adjudged to have very strong
capacity to meet its financial
commitments. AA rated entities are
judged to be of very high quality and are
subject to very low credit risk.
Commercial Banks rated in ST-1 in the
short term are considered to have the
highest capacity for timely repayment of
obligations. Banks rated in this category
are characterized with excellent position in
terms of liquidity, internal fund
generation, and access to alternative
sources of funds.
State Bank of India (SBI) was
incorporated in India under State Bank of
India Act 1955. The bank had a network
of 84 overseas offices spread over 32
countries. SBI (Bangladesh Operations)
has been operating in Bangladesh since
05 May 1975.
Both absolute size of the equity capital
and the capital adequacy ratio ensure the
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CRAB Ratings
Banks
solid position of the Bank. The capital of the Bank in Bangladesh stood at BDT
1,468.49 million as on 31 December 2007 against regulatory requirement of BDT
2,000.0 million (to be attained by June 2009). It is observed that a sum of BDT
487.65 million equivalent US$ 7.20 million has already been received by the Bank
from the head office after the balance sheet date (February 2008). As on December
2007 total regulatory capital stood at BDT 1,659.89 million registering a Capital
Adequacy Ratio of 23.06% (23.33%in2006).
The deposit of SBI stood at BDT 6,172.28 million in 2007, which was BDT 5,236.72
million in 2006, registering a growth rate of 17.87%. The growth rate of deposit
mobilization in 2007 was the lowest among the last five years due to 22% reduction
of deposit base in Dhaka Branch arising from non-renewal of a few corporate groups.
However the deposit base was low compared to other FCBs. Although the dependency
in fixed deposit (including term deposit) declined from 84.48% in 2006 to 73.09% in
2007, it is still very high compared to the peer group (55.60%). 71.91% of total
deposit will be matured by next twelve months and 28.10% will be matured beyond 1
year but within 5 years. Liquidity position in terms of liquid asset ratio i.e.; 40.13% of
deposit and borrowing is reasonably satisfactory.
Total loans and advances of SBI stood at BDT 5,919.56 million in 2007 which was
BDT 4,026.77 million in 2006 registering a growth rate of 47% and deposit lent out
ratio of 93%. However total loan portfolio of the Bank to that of peer average
remained stable at around 27.50% over the last two years. 54.85% of funded
portfolio was involved in short term credit (up to 1 year) in 2007, registering an
average rate of 58.64% over the five-year period ended 2007 having standard
deviation of 16%. The Bank had 21 accounts having more than BDT 10.0 million
outstanding loans and advances amounted to BDT 3,538.32 million, which reveals the
high concentration risk. Total Non-performing loan of the Bank increased from BDT
3.49 million in 2006 to BDT 214.86 million in 2007 where BDT 128.99 million (60%)
was bad loan. Therefore gross NPL as percentage of gross loans largely increased
from 0.09% in 2006 to 3.63% in 2007. Only 10 accounts comprised total NPL of BDT
214.86 million, while one obligor accounted for 56.79% of total NPL.
Total income form core earning sources (net interest income) stood at BDT 209.33
million in 2007 which was BDT 153.68 million in 2006 registering a growth rate of
36.21%. However the income from non interest income is still dominating (60% of
the total operating income) the earning sources due to 50% contribution of fees
income. However its Pre-tax profit (PTP) declined from BDT 284.63 million in 2006 to
BDT 233.42 million in 2007 by 28% and net profit significantly declined from BDT
147.86 million in 2006 to BDT 42.50 million in 2007 by 71.25% due to deterioration
in asset quality. Therefore PTP as percent of average asset and Net profit as percent
of average asset declined from 4.81% and 2.50% in 2006 to 2.98% and 0.54% in
2007 respectively.
The rating also takes into account the reporting system along with policy guidelines
for different banking activities. The bank is yet to comply with the establishment of
Internal Control and Compliance Division separating in Audit, Inspection and
Monitoring units. The Bank uses ‘Credit Risk Assessment’ technique along with CRG
model laid down by Bangladesh Bank to ensure sound credit culture. However the
Credit Department is yet to bring separation in Credit Appraisal, Credit Monitoring
and Recovery units as well as to establish job allocation among RM and CRM to
address the default risk. The rating also takes into consideration the small size of
operations of the Bank with 4 Branches.
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