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