The Company has managed to keep its NPLs below the industry average and in line with peers. CDB’s gross NPL ratio improved to ~4.6% by 9MFY26 (FY25: ~6.3%), remaining below the industry average of ~6.1%. Growth has been redirected towards vehicle and gold-backed lending, with the latter having a low NPL ratio of ~1.0% as of 9MFY26. Despite strong loan book growth of ~36% during 9MFY26, CDB’s focus on lower-risk, collateral-backed lending has helped contain NPL formation and preserve asset quality. The lagged impact of lower interest rates supported profitability during the period, with PAT increasing to LKR ~4.0bn in FY25 and reaching LKR ~3.2bn during 9MFY26. ROE improved to ~18.2% and ROA to ~2.8% in FY25, while the industry averages were ~15.2% and ~6.6% respectively. Going forward, profitability is expected to remain range-bound, as the margin pressure from increased exposure to lower-yielding products materializes. The recent increase in interest rates is expected to impact cost of funds quicker than asset repricing.
The total CAR moderated to ~17.84% as at 9MFY26 (FY25: ~18.09%), remaining above the regulatory minimum, though slightly below the industry average of around 18.70% (FY25: ~20.09%). Tier 1 capital also declined to ~12.25% from ~14.47%, while the Tier 2 ratio improved during the period. Going forward, capitalization is expected to improve through internal capital generation and a more balanced capital mix, although CDB’s growth appetite could keep CAR under pressure.
A gradual shift in CDB’s funding mix has been observed with share of deposits coming down to ~50.8% (FY25: 69.4%) while borrowing has increased. Deposits are largely short-term in nature and would result in higher cost due to interest rate increase. CDB has increased its leveraging to avail financing from the market and also availed foreign-currency funding at attractive rates to recalibrate its funding profile, as the cost of borrowed funds remains lower than deposits. The relatively longer tenor of borrowed funds has also improved maturity profile of the Company in 9MFY26.
The rating remains sensitive to CDB’s ability to sustain its asset quality and profitability metrics compared to peers. Any material deterioration in these would result in negative rating outcome. Similarly, maintaining strong capitalization and CAR is essential for the rating. Conversely, sustained structural improvement in NIM and profitability along with strengthening of CAR would be beneficial for the rating.