Moody's Investors Service yesterday (29) downgraded the long-term foreign currency deposit ratings of Bank of Ceylon (BOC), Hatton National Bank PLC (HNB), and Sampath Bank PLC (Sampath) to Caa1 from B3, and the banks’ long-term local currency deposit ratings to Caa1 from B2. The rating outlooks, where applicable, are Stable.
The rating actions conclude the review for downgrade that was initiated on 20 April 2020, and follow Moody's downgrade on 28 September 2020 of Sri Lanka's sovereign rating to Caa1 from B2, with a Stable outlook.
Moody's has also downgraded the Baseline Credit Assessment (BCA) of BOC to Caa1 from B3, and those of HNB and Sampath to Caa1 from B2. The downgrade of the BCAs of BOC, HNB, and Sampath is driven by the downgrade of Sri Lanka's sovereign rating, Moody’s said.
“The three banks have significant credit exposure to the sovereign through their holdings of government securities and lending to the domestic economy, which is itself correlated to sovereign creditworthiness.”
Moody's has also lowered Sri Lanka's macro profile – a key input to the banks' BCAs – to Weak- from Weak, to reflect the deterioration in the operating environment. In particular, the coronavirus outbreak has weighed on Sri Lanka's already weak economy and has weakened the Government's fiscal position.
Moody's expects the banks' asset quality to worsen significantly as a result of coronavirus disruptions, although the increase in problem loans will not be evident until 2021 because of regulatory forbearance measures, including a moratorium on loan repayments.
“The banks' profitability will also deteriorate largely because of higher credit costs and a compression in net interest margins, following successive policy rate cuts by the Central Bank. The banks' capital and funding will, however, remain as key strengths.”
Moody's incorporates a high or very high level of government support in the long-term deposit ratings of the three banks. However, it explained that this does not lead to any rating uplift because the banks' BCAs are already at the same level as the sovereign rating.
Moody's will subsequently withdraw the ratings of BOC. Moody's said it has decided to withdraw the ratings of BOC for its own business reasons.
Upgrade or further downgrade
An upgrade of the BCAs and long-term deposit ratings of HNB and Sampath is unlikely, given that they are already at the same level as Sri Lanka's sovereign rating and the outlook on the sovereign rating is Stable.
A downgrade of Sri Lanka's sovereign rating could lead to a downgrade of the BCAs and long-term deposit ratings of HNB and Sampath. Moody's could also downgrade the banks' BCAs if there is a material deterioration in asset quality. A significant decline in capitalisation could also pressure the banks' BCAs.
BOC, headquartered in Colombo, reported total assets of Rs. 2,722 billion at 30 June 2020. HNB PLC, headquartered in Colombo, reported total assets of Rs. 1,244 billion at 30 June 2020.Moody's downgrades BOC, HNB, and Sampath
30 Sep 2020
Moody's downgrades BOC, HNB, and Sampath
30 Sep 2020
Moody's Investors Service yesterday (29) downgraded the long-term foreign currency deposit ratings of Bank of Ceylon (BOC), Hatton National Bank PLC (HNB), and Sampath Bank PLC (Sampath) to Caa1 from B3, and the banks’ long-term local currency deposit ratings to Caa1 from B2. The rating outlooks, where applicable, are Stable.
The rating actions conclude the review for downgrade that was initiated on 20 April 2020, and follow Moody's downgrade on 28 September 2020 of Sri Lanka's sovereign rating to Caa1 from B2, with a Stable outlook.
Moody's has also downgraded the Baseline Credit Assessment (BCA) of BOC to Caa1 from B3, and those of HNB and Sampath to Caa1 from B2. The downgrade of the BCAs of BOC, HNB, and Sampath is driven by the downgrade of Sri Lanka's sovereign rating, Moody’s said.
“The three banks have significant credit exposure to the sovereign through their holdings of government securities and lending to the domestic economy, which is itself correlated to sovereign creditworthiness.”
Moody's has also lowered Sri Lanka's macro profile – a key input to the banks' BCAs – to Weak- from Weak, to reflect the deterioration in the operating environment. In particular, the coronavirus outbreak has weighed on Sri Lanka's already weak economy and has weakened the Government's fiscal position.
Moody's expects the banks' asset quality to worsen significantly as a result of coronavirus disruptions, although the increase in problem loans will not be evident until 2021 because of regulatory forbearance measures, including a moratorium on loan repayments.
“The banks' profitability will also deteriorate largely because of higher credit costs and a compression in net interest margins, following successive policy rate cuts by the Central Bank. The banks' capital and funding will, however, remain as key strengths.”
Moody's incorporates a high or very high level of government support in the long-term deposit ratings of the three banks. However, it explained that this does not lead to any rating uplift because the banks' BCAs are already at the same level as the sovereign rating.
Moody's will subsequently withdraw the ratings of BOC. Moody's said it has decided to withdraw the ratings of BOC for its own business reasons.
Upgrade or further downgrade
An upgrade of the BCAs and long-term deposit ratings of HNB and Sampath is unlikely, given that they are already at the same level as Sri Lanka's sovereign rating and the outlook on the sovereign rating is Stable.
A downgrade of Sri Lanka's sovereign rating could lead to a downgrade of the BCAs and long-term deposit ratings of HNB and Sampath. Moody's could also downgrade the banks' BCAs if there is a material deterioration in asset quality. A significant decline in capitalisation could also pressure the banks' BCAs.
BOC, headquartered in Colombo, reported total assets of Rs. 2,722 billion at 30 June 2020. HNB PLC, headquartered in Colombo, reported total assets of Rs. 1,244 billion at 30 June 2020.Kapruka
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Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Automobile, Mother and Baby Products, Clothing, and Fashion. Additionally, Kapruka offers unique online services like Money Remittance, Astrology, Medicine Delivery, and access to over 700 Top Brands. Also If you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.Send love straight to their heart this Valentine's with our thoughtful gifts!