Fitch downgrades long-term ratings of 10 Sri Lankan Banks

Fitch Ratings has downgraded the National Long-Term Ratings of 10 Sri Lankan banks following the recent sovereign downgrade and recalibration of the agency’s Sri Lankan national rating scale.

The recalibration is to reflect changes in the relative creditworthiness among Sri Lankan issuers following Fitch’s downgrade of Sri Lanka’s Long-Term Local Currency Issuer Default Rating (IDR) to ‘CC’ from ‘CCC’/Under Criteria Observation on 1 December 2022. Fitch typically does not assign Outlooks or apply modifiers to sovereigns with a rating of ‘CCC+’ or below.

National scale ratings are a risk ranking of issuers in a particular market designed to help local investors differentiate risk. Sri Lanka’s national scale ratings are denoted by the unique identifier ‘(lka)’. Fitch adds this identifier to reflect the unique nature of the Sri Lankan national scale. National scales are not comparable with Fitch’s international rating scales or with other countries’ national rating scales.

The National Ratings of the Sri Lankan banks consider their creditworthiness relative to other issuers in the country. The recalibration of the Sri Lankan National Rating scale has resulted in downgrades of the National Long-Term Ratings of the following banks:

• Bank of Ceylon (BOC) to ‘A(lka)’/Rating Watch Negative (RWN) from ‘AA-(lka)’/RWN
• People’s Bank (Sri Lanka) (PB) to ‘A(lka)’/RWN from ‘AA-(lka)’/RWN
• Commercial Bank of Ceylon PLC (CB) to ‘A(lka)’/RWN from ‘AA-(lka)’/RWN
• Hatton National Bank PLC (HNB) to ‘A(lka)’/RWN from ‘AA-(lka)’/RWN
• Sampath Bank PLC (Sampath) to ‘A(lka)’/RWN from ‘AA-(lka)’/RWN
• Cargills Bank Limited (CBL) to ‘A(lka)’/RWN from ‘A+(lka)’/RWN
• DFCC Bank PLC (DFCC) to ‘A-(lka)’/RWN from ‘A+(lka)’/RWN
• National Development Bank PLC (NDB) to ‘A-(lka)’/RWN from ‘A(lka)’/RWN
• Seylan Bank PLC (Seylan) to ‘A-(lka)’/RWN from ‘A(lka)’/RWN
• Nations Trust Bank PLC (NTB) to ‘A-(lka)’/RWN from ‘A(lka)’/RWN

A full list of ratings is at the end of this commentary.

Other Sri Lankan banks’ national ratings, which are not mentioned in this commentary, have not been affected by the recalibration exercise.

Also, Fitch Ratings has downgraded Ceylon Electricity Board’s (CEB) National Long-Term Rating to ‘B(lka)’ from ‘AA-(lka)’. The Outlook is Stable. Fitch has simultaneously downgraded the National Long-Term Rating of CEB’s outstanding senior unsecured debentures to ‘B(lka)’, from ‘AA-(lka)’.

The rating action follows the downgrade of the Sri Lankan sovereign’s Long-Term Local-Currency Issuer Default Rating (IDR) to ‘CC’ from ‘CCC’ on 1 December 2022, and the subsequent recalibration of Sri Lanka’s National Rating scale to reflect changes in the relative creditworthiness among the country’s issuers.

CEB’s ratings are equalised with that of its parent, the Sri Lankan sovereign, in line with Fitch’s Government-Related Entities (GRE) Rating Criteria. This is based on our assessment of a very strong likelihood of support from the state. CEB is the country’s monopoly electricity transmitter and distributor and accounts for around 75% of power generation.