Fitch cuts assessment Lankan banks’ operating environment to ‘b+’ from ‘bb-’

Fitch Ratings has downgraded its assessment of Sri Lankan banks’ operating environment to ‘b+’ from ‘bb-’ and assigned a negative outlook. 

Fitch believes operating conditions have become more challenging - as signalled by the downgrade of the sovereign rating to ‘B+’ from ‘BB-’ in February 2016 - and expects increased volatility to add pressure on the banks’ credit metrics.

However, Fitch maintains a stable outlook for the Sri Lankan banking sector for 2016, as a material deterioration in the sector’s credit profile is not expected in the short-term. 
Fitch believes the underlying operating conditions supporting sector performance are likely to remain intact and pressure on the economic environment is likely to be contained through tighter monetary policy.
The operating environment is a key rating driver for the Sri Lankan banking sector. It constrains the viability rating (VR) of some banks, as it is rare for a VR to be assigned significantly above the sovereign rating, however well banks score on other factors.

Meanwhile, Fitch Ratings has downgraded National Development Bank PLC’s (NDB) national long-term rating to ‘A+(lka)’ from ‘AA-(lka)’. The ratings on eight other Sri Lanka banks have been affirmed. 
The agency also revised the outlook on DFCC Bank PLC’s (DFCC) and Sampath Bank PLC’s (Sampath) national long-term ratings to negative.
The long-term issuer default ratings (IDRs) on National Savings Bank (NSB) and Bank of Ceylon (Bank of Ceylon) have been affirmed at ‘B+’ and their national long-term ratings have been affirmed at ‘AAA(lka)’ and ‘AA+(lka)’, respectively. 

The outlooks on the IDRs of NSB and Bank of Ceylon have been maintained at Negative while the Outlooks on their National Long-Term Ratings have been maintained at Stable. 
Fitch has also affirmed the national long-term rating of People’s Bank (Sri Lanka) (People’s Bank) at ‘AA+(lka)’ with a Stable Outlook.
Furthermore, Fitch has affirmed the national long-term rating of Commercial Bank of Ceylon PLC (CB) at ‘AA(lka)’, Hatton National Bank PLC (HNB) at ‘AA-(lka)’, and Seylan Bank PLC (Seylan) at ‘A-(lka)’.
DFCC’s Support Rating Floor (SRF) was revised to ‘B-’ from ‘B’.