Fitch rates HNB's Subordinated Debt Issue 'A+
Fitch Ratings has assigned Sri Lanka-based Hatton National Bank PLC's
(HNB; AA-(lka)/Stable) proposed issue of unsecured subordinated
redeemable debentures of up to Rs 4bn an expected National Long-Term
rating of 'A+(lka)(EXP)'. HNB plans to list the debentures subject to
receiving the necessary regulatory approvals. The final rating is
contingent upon the receipt of final documentation conforming to
information already received, including details regarding the amount and
tenor.
The proposed debentures are rated one notch below HNB's National
Long-Term rating of 'AA-(lka)' to reflect their subordinated status. The
proposed debentures will have a five-year tenor with bullet principal
repayment at maturity. Coupon payments will be at a fixed rate, and paid
annually, helping the bank to reduce its exposure to interest rate risk.
HNB expects to use the proceeds to fund its projected lending
activities and to strengthen the bank's regulatory Tier 2 capital base.
HNB's ratings reflect its strong domestic franchise and satisfactory
financial profile, supported by healthy capitalisation levels, average
asset quality and healthy profitability compared with domestic peers.
The ratings are, however, constrained by the bank's higher
non-performing loan (NPL) concentrations compared with higher-rated
peers, most recently driven by its exposure to weak credits in the
Maldives. A structurally higher loan/deposit ratio and a lower mix of
current and savings deposit accounts, compared with higher-rated peers,
are also constraints on the ratings.
A material reduction in HNB's NPL concentrations or a strong
commitment to maintaining Tier 1 capital adequacy ratio and impairment
reserve coverage above higher-rated peers' over the long-term, could
lead to a rating upgrade. Sustained improvements in its current
and-savings account base (2012: 45% of deposits) and loans/deposits
ratio (2012: 90%) over the medium-term could also support a higher
rating.
Conversely, a sustained material weakening in HNB's capitalisation or
asset quality relative to its rated peers could result in a rating
downgrade. |