Fitch Ratings has downgraded Housing Development Finance Corporation Bank of Sri Lanka’s (HDFC Bank) National Long-Term Rating to ‘BBB-(lka)’ from ‘BBB(lka)’.
HDFC Bank’s senior secured and senior unsecured debentures have also been downgraded to ‘BBB-(lka)’ from ‘BBB(lka)’. The ratings are maintained on Rating Watch Negative (RWN).
The one-notch downgrade reflects Fitch’s assessment of the weakening of support from the Sri Lanka sovereign (B+/Stable) to HDFC Bank. This is after the state failed to provide capital to the bank in timely manner for it to meet the minimum Rs 5 billion regulatory capital requirement by January 1, 2018. However, Fitch believes that it is still likely that the authorities would provide adequate support to meet the shortfall within an extended deadline.
The RWN reflects the risk that the state, as major shareholder, would not raise the bank’s capital to meet the minimum capital requirement, in which case Fitch will downgrade the rating to reflect the bank’s weaker intrinsic strength.
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