Fitch rates HNB’s Subordinated Debt Final ‘A+(lka)’
Fitch Ratings has assigned Hatton National Bank PLC’s (HNB; AA-(lka)/Stable)
issue of unsecured subordinated redeemable debentures of up to Rs 4
billion a final National Long-Term rating of ‘A+(lka)’.
The assignment of the final rating follows the receipt of final
documents which conform to information previously received. The final
rating is at the same level as the expected rating assigned on April 11,
2013 (see ‘Fitch Rates Sri Lanka’s HNB’s Subordinated Debt Issue ‘A+(lka)(EXP)’’
at www.fitchratings.com).
The debentures are rated one notch below HNB’s National Long-Term
rating of ‘AA-(lka)’ to reflect their subordinated status. The
debentures have a five-year tenor with bullet principal repayment at
maturity. Coupon payments are at a fixed rate and paid annually, helping
the bank to reduce its exposure to interest rate risk. The debentures do
not contain any deferral clauses and therefore Fitch has not assigned
any equity credit to this issue.
HNB is 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 rating constraints.
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. |