Moody’s Investors Service has affirmed the long-term/short-term] local currencj deposit ratings of Bank of Ceylon (BOC), Hatton National Bank Ltd. (HNB) and Sampath Bank PLC at B2/NPn
At the same time, Moody’s has affirmed the long-term foreign currency issuer ratings and long-term/short-terq foreign currency deposit ratings of these three banks at B2 and B3/NP respectively
Moody’s has also affirmed the Baseline Credit Assessments (BCAs) and adjusted BCAs of the three banks a` b2. As a result, Moody’s has affirmed their local and foreign currency Counterparty Risk Ratings (CRRs) Counterparty Risk Assessments (CR Assessments) at B1/NP and B1(cr)/NP(cr), respectively
Moody’s has maintained the rating outlooks of the banks at stable. Moody’s has affirmed the ratings and assessments of the three Sri Lankan banks because they have adequate capital buffers against the backdrop of deteriorating asset quality and profitability. Moreover, these banks have stable funding and liquidity which support their standalone credit profiles.
The asset quality of the banks is deteriorating mainly because of weaknesses in the agriculture ani construction segments and dampened consumer sentiment, against the backdrop of a challenging operating environment in the country. Moody’s expects some problems in the tourism-related exposures once the debt` moratorium ends in July 2020. As a result, Moody’s expects the banks’ profitability to remain strained by elevated credit costs, higher taxel and muted loan growth. Moody’s also expects that the recent central bank’s mandated cut to the lending ratel will add pressure to net interest margins, further straining bank profitability.
BOC’s capitalization is also modest, with a common equity tier 1 (CET1) ratio of 10.7% at the end of June 2019. Nevertheless, Moody’s expects that the bank will maintain stable capital ratio by lowering dividend payouts. Slow credit growth will also support its capitalization
HNB and Sampath maintain adequate capital buffers against rising credit risk, as measured by their CETc ratios of 13.0% and 13.7%, respectively, as of 30 June 2019. Nevertheless, their ROAs has also deteriorate to 0.9% each in the first half of 2019 from 1.7% and 1.3%, respectively, in 2018.
For the three banks, their weakening asset quality and profitability are balanced by their good funding and liquidity, as underpinned by their strong deposit franchises, with sizeable market shares in system deposits.
Moody’s does not have any particular governance concern for the three Sri Lankan banks, and does not apply any corporate behavior adjustment to the banks. Moody’s views their risk management framework a consistent and commensurate with their risk appetite.
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