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Fitch assigns Sri Lanka's Cargills Bank rating

Fitch Ratings assigned Sri Lanka's Cargills Bank Ltd. a national long-term rating of BB(lka), with a stable outlook.

The rating agency said Oct. 18 that the rating reflects the bank's small and developing domestic franchise, evolving business model and limited operating history in Sri Lanka's banking sector. The rating also highlights the lender's high-risk appetite and pressures on its financial profile, particularly asset quality and funding and liquidity.

Fitch believes that the bank's nonperforming loan ratio is expected to be higher than that of the industry in the short to medium term, as it grows rapidly into the more economically vulnerable segments.

The bank's rating can be upgraded if it is able to build a sustainable business model through the execution of its medium-term strategy. A rating upgrade is also expected if Fitch sees an improvement in its financial profile, particularly in profitability and funding.

Conversely, the bank could face downward pressure if there is a decline in loss-absorption buffers, either through aggressive loan expansion or a greater share of unprovisioned NPLs.