Moody’s cuts outlooks of 3 local banks following sovereign outlook downgrade

Following the downgrading of Sri Lanka’s B1 sovereign rating outlook to negative from stable, Moody’s yesterday revised down the outlooks of Bank of Ceylon, Hatton National Bank and Sampath Bank, to negative from stable. The baseline credit assessments (BCAs) and adjusted BCAs of the three banks were affirmed at b1.The counterparty risk assessments (CRAs) of the three banks were affirmed at Ba3(cr)/NP(cr). “The ratings and outlooks of banks typically follow the ratings and outlooks of their respective governments if the banks’ ratings are positioned at the same level as capped by the sovereign rating, which is the case for Bank of Ceylon, Hatton National Bank Ltd. and Sampath Bank PLC. Typically, such linkages between the sovereign credit profile and the credit metrics of the domestic banks are driven by the banks’ large investments in sovereign bonds,” Moody’s said. The rating agency further said the operating conditions for Sri Lankan banks have weakened.