Fitch Ratings affirm long-term issuer default ratings of Sri Lanka’s NSB and BOC
Fitch Ratings has reportedly affirmed the long-term issuer default ratings (IDR) of Sri Lanka’s National Savings Bank (NSB) and Bank of Ceylon (BOC).
Accordingly, NSB is at ‘B’; outlook stable and BOC at ‘B’; outlook stable.
Fitch has also affirmed the national long-term ratings of the following banks:
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NSB at ‘AA+(lka)’; outlook stable
BOC at ‘AA+(lka)’; outlook stable
People’s Bank (Sri Lanka) at ‘AA+(lka)’; outlook stable
At the same time, Fitch has affirmed and withdrawn the rating on BOC’s proposed Basel III compliant Sri Lanka rupee-denominated subordinated debentures at ‘AA(lka)’, as the issuance has not taken place.
A full list of rating actions is at the end of this commentary.
The IDRs and National Long-Term Ratings of NSB and BOC and the National Long-Term Rating of People’s Bank reflect Fitch’s expectation of extraordinary support from the sovereign (B/Stable), reports state.
Fitch believes state support for NSB stems from its policy mandate of mobilising retail savings and investing them in government securities as well as its systemic importance and full government ownership.
NSB is the only bank in Sri Lanka to carry an explicit government guarantee on its deposits, although the benefit of this is offset by the state’s weak ability to provide support, as reflected in the low sovereign rating.
Fitch has not assigned a Viability Rating to NSB as it is a policy bank. The US-dollar senior unsecured notes issued by NSB are rated at the same level as the bank’s Long-Term Foreign-Currency IDR, as they rank equally with the bank’s other senior unsecured obligations.
The notes have a Recovery Rating of ‘RR4’, which indicates typical historical recovery prospects of 31%-50%. This reflects Fitch’s view of average recovery prospects for unsecured senior creditors in case of default.
Fitch expects support for BOC to stem from its high systemic importance, quasi-sovereign status, its role as one of the key lenders to the government and full state ownership.
BOC’s Viability Rating reflects its thin capitalisation and asset-quality pressures amid a challenging operating environment. This is partly balanced by a stronger domestic funding franchise than the majority of sector peers.
Fitch considers state support as BOC’s primary rating driver, even though its Viability Rating is at the same level as its Support Rating Floor.
Fitch expects support for People’s Bank to stem from its high systemic importance, quasi-sovereign status, its role as one of the key lenders to the government and full state ownership.
The Support Ratings and Support Rating Floors of NSB and BOC reflect the state’s ability and propensity to provide support to the banks given their high importance to the state and high systemic importance.
Changes to Sri Lanka’s sovereign rating and/or in Fitch’s perception of state support for the banks could result in a change in the banks’ IDRs and the National Long-Term Ratings of NSB, BOC and People’s Bank.
OSL take:
The statement made by Fitch Ratings on Sri Lanka’s NSB and BOC is indicative of the strength and growth of the country’s banking sector. The strong banking sector is indicative of Sri Lanka’s overall economic growth. Therefore foreign businesses/investors could confidently engage with Sri Lanka as there’s a strong banking sector in the country.
| Article Code : | VBS/AT/04092019/Z_4 |