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Rating Action:

Moody's affirms ratings of three banks in Sri Lanka; maintains negative outlook

26 Jul 2018

Singapore, July 26, 2018 -- Moody's Investors Service has affirmed the local currency deposit ratings of Bank of Ceylon (BOC), Hatton National Bank Ltd. (HNB) and Sampath Bank PLC at B1/NP. The foreign currency issuer rating and deposit ratings of these banks are also affirmed at B1 and B2/NP respectively.

Moody's has also affirmed the Baseline Credit Assessments (BCAs) and adjusted BCAs of these banks at b1. As a result, their local and foreign currency Counterparty Risk Ratings (CRRs) are affirmed at Ba3/NP. Their Counterparty Risk Assessments (CRAs) are also affirmed at Ba3(cr)/NP(cr).

The rating outlooks of the banks, where applicable, are maintained at negative.

The rating action follows the affirmation of Sri Lanka's B1 sovereign rating and negative outlook on 26 July 2018.

A full list of the ratings affected by this rating action can be found at the end of this press release.

RATINGS RATIONALE

AFFIRMATIONS OF RATINGS AND OUTLOOK

The decision to affirm the bank ratings reflects Moody's affirmation of Sri Lanka's sovereign rating and outlook, as well as the banks' stable standalone credit profiles.

Moody's believes that there is high level of dependency between the creditworthiness of rated Sri Lankan banks and the sovereign mainly because of (1) the high extent to which the banks' businesses depend on macroeconomic and financial conditions in Sri Lanka, with a low level of cross-border diversification in their operations; and (2) their significant direct and indirect exposures to domestic sovereign debt relative to their capital bases.

Sri Lanka's credit strength is also a key input in Moody's deposit and issuer ratings for financial institutions in the country, because it affects Moody's assessment of the government's capacity to provide support in times of stress.

As such, the banks are not expected to be rated higher than the sovereign, and the outlook is usually in line with the sovereign.

The decision to affirm the sovereign rating at B1 reflects Sri Lanka's progress in implementing the planned reform program, which entails fiscal consolidation and a build-up foreign exchange reserves buffers, ahead of the end of the IMF Extended Fund Facility program in June 2019, along with its moderate per capita income levels, and stronger institutions relative to many similarly-rated sovereigns. This is balanced against Moody's expectation that the sovereign's fiscal strength will remain very low and government liquidity and external vulnerability risk will remain rating constraints.

The decision to maintain the negative outlook reflects Sri Lanka's ongoing high vulnerability to a potential tightening in external and domestic financing conditions, given relatively large borrowing needs, reliance on external funding and still low reserves adequacy. That feature dominates Sri Lanka's credit profile. The government could face significantly tighter refinancing conditions at some point during the next few years, which would quickly lead to much weaker debt affordability and a higher debt burden, especially if the currency depreciated at the same time.

The rating action on Sri Lanka is discussed in greater details under Moody's press release dated 26 July 2018 (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_385560).

WHAT COULD MOVE THE RATING UP

Given the negative sovereign outlook, there is no potential for an upward revision of the long-term credit ratings of the three Sri Lankan banks. This is because the banks' long-term ratings are positioned at the same level as Sri Lanka's sovereign B1 rating.

WHAT COULD MOVE THE RATING DOWN

Downgrade of the sovereign rating will result in the downgrade of the banks' ratings.

The banks' BCAs could also be downgraded due to a material deterioration in their solvency factors such as asset quality or capital. Tighter liquidity and increased reliance on market funding would also be negative for their BCAs.

LIST OF AFFECTED RATINGS

Bank of Ceylon

• Domestic currency deposit rating affirmed at B1/NP.

• Foreign currency deposit rating affirmed at B2/NP.

• Long-term foreign currency issuer rating affirmed at B1.

• BCA and Adjusted BCA affirmed at b1.

• Domestic and foreign currency CRRs affirmed at Ba3/NP.

• CRA affirmed at Ba3(cr)/ NP(cr) .

Outlooks on all ratings, where applicable, are maintained at negative.

Sampath Bank PLC

• Domestic currency deposit rating affirmed at B1/NP.

• Foreign currency deposit rating affirmed at B2/NP.

• Long-term foreign currency issuer rating affirmed at B1.

• BCA and Adjusted BCA affirmed at b1.

• Domestic and foreign currency CRRs affirmed at Ba3/NP.

• CRA affirmed at Ba3(cr)/NP(cr) .

Outlooks on all ratings, where applicable, are maintained at negative.

Hatton National Bank Ltd.

• Domestic currency deposit rating affirmed at B1/NP.

• Foreign currency deposit rating affirmed at B2/NP.

• Long-term foreign currency issuer rating affirmed at B1.

• BCA and Adjusted BCA affirmed at b1.

• Domestic and foreign currency CRRs affirmed at Ba3/NP.

• CRA affirmed at Ba3(cr)/ NP(cr).

The outlooks on all ratings, where applicable, are maintained at negative.

The principal methodology used in these rating was Banks published in July 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Bank of Ceylon, headquartered in Colombo, reported total assets of LKR2,093 billion at 31 March 2018.

Sampath Bank PLC, headquartered in Colombo, reported total assets of LKR879 billion at 31 March 2018.

Hatton National Bank Ltd., headquartered in Colombo, reported total assets of LKR1,044 billion at 31 March 2018.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Tengfu Li
Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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