Seylan Bank
Fitch Ratings has affirmed the National Long-Term Rating on Seylan Bank PLC at ‘A-(lka)’. The Outlook is Stable.
Seylan’s National Long-Term Rating captures the bank’s weak capital buffers and deteriorating asset quality, which reflect the bank’s high-risk appetite. The bank has significant exposure to the retail and SME segments, which are highly susceptible to economic cycles.
Fitch expects Seylan to be designated a domestic systemically important bank (D-SIB) once its assets reach Rs 500 billion (end-June 2019: LKR485 billion). This will subject Seylan to higher regulatory capital requirements of 10% for Tier 1 capital ratio and 14% for total capital ratio, including a 1.5 pp capital surcharge for D-SIBs. To meet these requirements, the bank may need to undertake a capital raising as its internal capital generation is modest and its growth aspirations are strong. The bank has announced it plans to raise LKR4.3 billion of common equity, which is equivalent to 1.2% of the bank’s risk-weighted assets at end-June 2019.
DFCC Bank
Fitch Ratings has affirmed Sri Lanka-based DFCC Bank PLC’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘B’ and National Long-Term Rating at ‘AA-(lka)’. The Outlook is Stable. DFCC’s IDRs are driven by its intrinsic strength. DFCC’s Viability Rating and National Long-Term Rating reflect DFCC’s above-average capitalisation, which compensates for the risks stemming from its developing commercial bank franchise, deteriorating asset quality and weak earnings.
DFCC’s Fitch Core Capital ratio of 15.9% at end-June 2019 remains one of the highest among its large peers. The ratio continues to be affected by mark-to-market losses associated with its stake in Commercial Bank of Ceylon PLC (AA(lka)/Stable), of which a part is categorised as available-for-sale.
Sampath Bank
Fitch Ratings (Lanka) Limited has affirmed the National Long-Term Rating of Sampath Bank PLC at ‘A+(lka)’. The Outlook is Stable.
Sampath’s National Long-Term Rating reflects its weakened asset quality and high-risk appetite, which offset benefits from the bank’s improved capitalisation.
The weakness in Sampath’s asset quality is likely to continue in the medium term following strong loan growth and amid a weak operating environment. Stresses in the bank’s books have started to manifest with reported non-performing loan (NPL) ratio rising to 5.7% by end-June 2019, from 3.7% at end-2018 and 1.6% at end-2017. The ratio of restructured loans to total loans in 2018 and 1H19 remained high.
Hatton National Bank
Fitch Ratings has affirmed Sri Lanka-based Hatton National Bank PLC’s (HNB) National Long-Term Rating at ‘AA-(lka)’. The Outlook is Stable. At the same time, Fitch has affirmed the bank’s Sri Lanka rupee-denominated senior unsecured debt at ‘AA-(lka)’. The ratings on HNB’s Basel II and Basel III compliant Sri Lanka rupee-denominated subordinated debt are affirmed at ‘A+(lka)’.
HNB’s rating is driven by its intrinsic financial strength, reflecting its strong domestic franchise as Sri Lanka’s fourth-largest commercial bank, commanding 9%-10% of system assets, loans and deposits at end-June 2019. The rating also takes into account the bank’s adequate capitalisation and generally better-than-average financial profile. This is counterbalanced by a high risk appetite and a deteriorating loan quality.
HNB’s reported non-performing loan (NPL) ratio deteriorated sharply to 4.7% in 1H19, from 2.8% in 2018, due primarily to an increase in SME NPLs. We expect asset-quality pressure to persist in the short term, but a significant deterioration from current levels is less probable.
National Development Bank
Fitch Ratings has affirmed National Development Bank PLC’s (NDB) National Long-Term Rating at ‘A+(lka)’. The Outlook remains Negative. The rating reflects a modest franchise, balanced against declining capitalisation and rising risk appetite.
The Negative Outlook reflects our expectation of continued pressure on NDB’s capitalisation, which has been on a decreasing trend. This is even after a LKR3.4 billion capital-raising in 4Q18, with the group’s Tier 1 capital ratio falling to 10.2% by end-June 2019, from 12.9% at end-2014, while the bank’s Tier 1 capital ratio is lower at 9.0% (2014: 10.1%).
Fitch believes the bank could continue to face difficulty in maintaining its medium-term capital buffers that are commensurate with its risk appetite. This is in light of strong growth aspirations and potentially higher exposure to the more susceptible retail and SME segments, which collectively constituted 42% of total loans at end-2018. Furthermore, NDB could face higher capital requirements as a domestic systemically important bank (D-SIB), when its asset base crosses the LKR500 billion threshold (end-June 2019: LKR490billion (bank); LKR496 billion (group)). This will require the bank to maintain minimum Tier 1 and total capital ratios of 10.0% and 14.0%, respectively, which include a capital surcharge of 1.5% for D-SIBs.
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