Fitch Ratings has affirmed the ratings on nine of Sri Lanka’s banks, both state-owned and private banks.
The long-term Issuer Default Ratings (IDRs) on National Savings Bank and Bank of Ceylon (BoC) have been affirmed at ‘BB-’ and their national long-term ratings have been affirmed at ‘AAA(lka)’ and ‘AA+(lka)’, respectively. Fitch has also affirmed the national long-term rating of People’s Bank at ‘AA+(lka)’.
Fitch said the ratings reflect the “extraordinary support” the banks get from the government of Sri Lanka and their systemic importance.
“Their stable outlook mirrors the stable outlook on the sovereign’s rating,” Fitch said.
At the same time, Fitch has affirmed the long-term IDRs of DFCC Bank PLC at ‘B+’ and the national long-term ratings of DFCC and DFCC Vardhana Bank PLC at ‘AA-(lka)’.
National Development Bank PLC’s (NDB) national long-term rating was affirmed at ‘AA-(lka)’.
Fitch also affirmed NDB’s long-term IDR at ‘B+’ and subsequently withdrew the rating due to commercial reasons.
Furthermore, Fitch has affirmed the national long-term rating of Commercial Bank of Ceylon PLC (Commercial) at ‘AA(lka)’, Hatton National Bank PLC (HNB) at ‘AA-(lka)’ and Seylan Bank PLC at ‘A-(lka)’.
Fitch has downgraded the national long-term rating of Sampath Bank PLC to ‘A+(lka)’ from ‘AA-(lka).
The downgrade of Sampath Bank’s national long-term rating reflects the weakening of its capitalisation relative to peers, which offset benefits from the growth of its franchise.
Fitch expects that this trend will continue as the bank is not likely to be able to sustain growth purely through retained earnings.
The bank’s core capital ratio declined to 10.6 percent at end-March 2015 from 13.1 percent at end-December 2013. Its regulatory Tier 1 ratio also deteriorated to 8.3 percent from 10.1 percent over the same period while the Tier 1 ratio of its direct peers remained above 11 percent.
“The weakening was mainly due to a shift in Sampath Bank’s loan book towards consumer and retail loans which carry a higher risk weight. Pawning advances, which were zero risk weighted, decreased to 6.6 percent of loans at end-March 2015 from 19.4 percent at end-2013.”
Fitch maintains a stable outlook for the Sri Lankan banking sector. This is because the sector credit profile is not likely to deteriorate materially even though there could be downside pressure on asset quality and profitability.
The national long-term ratings of Seylan Bank reflects Fitch’s view that the state would provide it extraordinary support in case of need because the regulator has classified it as one of six domestic systemically important banks. Fitch assigns Seylan Bank a lower support-driven rating because it has a smaller market share compared with its larger peers.
Fitch considers Commercial Bank as the strongest bank in this peer group. Its rating captures its more measured risk appetite, solid franchise, sound track record and strong funding profile. The bank’s provision coverage has been improving and asset quality has remained satisfactory. The ratings reflect our expectation that its operations in Bangladesh will remain small.
HNB’s rating reflects its strong franchise, satisfactory capitalisation, established track record and higher risk appetite compared to better-rated peers. Its senior debentures carry the same rating as they rank equal with other unsecured obligations.