Singapore, April 20, 2020 -- Moody's Investors Service has placed the B2 long-term local
currency deposit and foreign currency issuer ratings of Bank of Ceylon
(BOC), Hatton National Bank Ltd. (HNB) and Sampath Bank PLC
(Sampath) on review for downgrade.
At the same time, Moody's has downgraded the Baseline Credit
Assessment (BCA) of BOC to b3 from b2 and placed it on review for further
downgrade. Moody's has also placed the b2 BCAs of HNB and
Sampath on review for downgrade.
The outlooks have been changed to rating under review from stable.
The rating actions follow Moody's placement of Sri Lanka's B2 sovereign
rating on review for downgrade. For more information on the sovereign
rating action, please refer to the Government of Sri Lanka issuer
page on www.moodys.com.
A full list of the ratings is provided at the end of this press release.
RATINGS RATIONALE
The decision to place the banks' assessments and ratings on review
for downgrade reflects Moody's placement of Sri Lanka's B2 sovereign
rating on review for downgrade. Moody's believes that there is
a high level of dependency between the creditworthiness of Sri Lankan
banks and that of the sovereign, because the banking operations
are largely domestic and the banks hold significant amounts of sovereign
debt. In addition, the sovereign's credit strength is a key
input to Moody's assessment of the government's ability to support the
banks in times of need.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, volatile oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The Sri Lankan banking system
has been one of the sectors affected by the shock, given Sri Lanka's
weak economy and heavy reliance on external borrowings. Moody's
regards the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
Today's action also incorporates the negative impact on BOC, HNB
and Sampath of the breadth and severity of the shock, and the likely
deterioration in the banks' asset quality and in the government's
ability to support these banks in times of need.
Sri Lanka's already weak economy will take a further hit from the
widespread disruption to tourism, export-oriented sectors
and domestic activities because of the coronavirus pandemic. The
deterioration in macroeconomic conditions also has the potential to substantially
weaken the banks' asset quality and profitability. At the
same time, the risk-off sentiment among global investors
could also hinder the government's access to external borrowings,
exacerbating the deterioration in the government's fiscal position
and ability to support the banks in times of need. The degree of
negative impact will depend on the length of the disruption, which
is uncertain at this point.
The downgrade of BOC's BCA mainly reflects the deterioration in
the bank's asset quality, as well as the bank's low
capitalization when compared to its Sri Lankan peers. BOC's
problem loan ratio, based on the proportion of stage 3 loans under
the equivalent of IFRS (International Financial Accounting Standard) 9,
rose to more than 10% as of 31 December 2019 from 9.2%
a year ago amid subdued tourism activity following the Easter Sunday 2019
terrorist attack. The bank's Common Equity Tier 1 ratio of
11.4% as of 31 December 2019 is also modest relative to
the rated peer average of 13.4%, reflecting a weak
loss buffer amid a deteriorating operating environment. Despite
its weakening solvency, Moody's expects the bank's funding
and liquidity will remain stable over the next 12-18 months.
Moody's incorporates a very high probability of government support
in the ratings of BOC, reflecting the bank's systemic importance
as the largest bank in Sri Lanka and the government's full ownership
of the bank. As a result, BOC's B2 long-term
local currency deposit and foreign currency issuer ratings are one notch
higher than the bank's BCA.
While Moody's incorporates a high probability of government support
in the long-term local currency deposit and foreign currency issuer
ratings of HNB and Sampath, in line with the banks' sizable
market shares in terms of deposits, the ratings do not benefit from
any uplift because the banks' BCAs are already at the same level
as the sovereign rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the review for downgrade, the banks' BCAs and long-term
ratings are unlikely to be upgraded during the review period. Nevertheless,
Moody's could confirm the ratings with either a stable or negative
outlook if the coronavirus situation eases and the impact on Sri Lanka's
economy and the government's ability to refinance its debts is not
as severe as Moody's currently anticipates.
A downgrade of the sovereign rating could lead to a downgrade of the banks'
BCA and long-term ratings. Moody's could also downgrade
the banks' BCAs if there is a material deterioration in asset quality.
A significant decline in capitalization will also exert downward pressure
on the banks' BCAs.
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/research/Banks-Methodology--PBC_1147865.
Alternatively, 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 LKR2,462 billion at 31 December 2019.
Hatton National Bank Ltd., headquartered in Colombo,
reported total assets of LKR1,196 billion at 31 December 2019.
Sampath Bank PLC, headquartered in Colombo, reported total
assets of LKR999 billion at 31 December 2019.
Issuer: Bank of Ceylon
.... Adjusted Baseline Credit Assessment,
Downgraded to b3 from b2; Placed Under Review for further Downgrade
.... Baseline Credit Assessment, Downgraded
to b3 from b2; Placed Under Review for further Downgrade
.... Long-term Counterparty Risk Assessment,
Downgraded to B2(cr) from B1(cr); Placed Under Review for further
Downgrade
.... Short-term Counterparty Risk Assessment,
Affirmed NP(cr)
.... Long-term Counterparty Risk Rating
(Foreign and Local Currency), Downgraded to B2 from B1; Placed
Under Review for further Downgrade
.... Short-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed NP
.... Long-term Issuer Rating (Foreign
Currency), Placed on Review for Downgrade, currently B2,
Outlook Changed To Rating Under Review From Stable
.... Long-term Deposit Rating (Foreign
Currency), Placed on Review for Downgrade, currently B3,
Outlook Changed To Rating Under Review From Stable
.... Long-term Deposit Rating (Local
Currency), Placed on Review for Downgrade, currently B2,
Outlook Changed To Rating Under Review From Stable
.... Short-term Deposit Rating (Foreign
and Local Currency), Affirmed NP
.... Outlook, Changed To Rating Under
Review From Stable
Issuer: Hatton National Bank Ltd.
.... Adjusted Baseline Credit Assessment,
Placed on Review for Downgrade, currently b2
.... Baseline Credit Assessment, Placed
on Review for Downgrade, currently b2
.... Long-term Counterparty Risk Assessment,
Placed on Review for Downgrade, currently B1(cr)
.... Short-term Counterparty Risk Assessment,
Affirmed NP(cr)
.... Long-term Counterparty Risk Rating
(Foreign and Local Currency), Placed on Review for Downgrade, currently
B1
.... Short-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed NP
.... Long-term Issuer Rating (Foreign
Currency), Placed on Review for Downgrade, currently B2,
Outlook Changed To Rating Under Review From Stable
.... Long-term Deposit Rating (Foreign
Currency), Placed on Review for Downgrade, currently B3,
Outlook Changed To Rating Under Review From Stable
.... Long-term Deposit Rating (Local
Currency), Placed on Review for Downgrade, currently B2,
Outlook Changed To Rating Under Review From Stable
.... Short-term Deposit Rating (Foreign
and Local Currency), Affirmed NP
.... Outlook, Changed To Rating Under
Review From Stable
..Issuer: Sampath Bank PLC
.... Adjusted Baseline Credit Assessment,
Placed on Review for Downgrade, currently b2
.... Baseline Credit Assessment, Placed
on Review for Downgrade, currently b2
.... Long-term Counterparty Risk Assessment,
Placed on Review for Downgrade, currently B1(cr)
.... Short-term Counterparty Risk Assessment,
Affirmed NP(cr)
.... Long-term Counterparty Risk Rating
(Foreign and Local Currency), Placed on Review for Downgrade,
currently B1
.... Short-term Counterparty Risk Rating
(Foreign and Local Currency), Affirmed NP
.... Long-term Issuer Rating (Foreign
Currency), Placed on Review for Downgrade, currently B2,
Outlook Changed To Rating Under Review From Stable
.... Long-term Deposit Rating (Foreign
Currency), Placed on Review for Downgrade, currently B3,
Outlook Changed To Rating Under Review From Stable
.... Long-term Deposit Rating (Local
Currency), Placed on Review for Downgrade, currently B2,
Outlook Changed To Rating Under Review From Stable
.... Short-term Deposit Rating (Foreign
and Local Currency), Affirmed NP
.... Outlook, Changed To Rating Under
Review From Stable
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
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Singapore 48623
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