Fitch assigns Seylan Bank’s Basel III Subordinated Debt Final ‘BBB(lka)’/RWN

Wednesday, 29 March 2023 00:00 - - {{hitsCtrl.values.hits}}

Fitch Ratings said yesterday it has assigned Seylan Bank PLC’s (A-(lka)/Rating Watch Negative (RWN)) proposed Sri Lankan rupee-denominated Basel III compliant subordinated debentures of up to Rs. 7 billion a final National Long-Term Rating of ‘BBB(lka)’/RWN.

The final rating is the same as the expected rating assigned on 8 March 2023 and follows the receipt of documents conforming to information already received.

The debentures, which have maturities of five years, will be listed on the Colombo Stock Exchange. The bank plans to use the proceeds to strengthen its Tier 2 capital base as well as to meet demand for credit.

The bank expects the proposed debentures to qualify as Basel III-compliant regulatory Tier 2 capital. The debentures include a non-viability clause whereby they will convert to ordinary voting shares subject to the occurrence of a trigger event, as determined by the Monetary Board of Sri Lanka.

Fitch rates the proposed Basel III Tier 2 notes two notches below the bank’s National Long-Term Rating of ‘A-(lka)’/RWN.

This reflects Fitch’s baseline notching for loss severity for this type of debt, and our expectations of poor recoveries. There is no additional notching for non-performance risks, as the notes do not incorporate going-concern loss-absorption features.

Seylan’s National Long-Term Rating is used as the anchor rating for this instrument because the rating reflects the bank’s standalone financial strength and best indicates the risk of the bank becoming non-viable. The RWN on the subordinated debt stems from the RWN on the corresponding National Long-Term Rating. Fitch downgraded Seylan’s National Long-Term Rating on 12 January 2023 to ‘A- (lka)’, from ‘A(lka)’, following the national scale recalibration and maintained the rating on RWN.

The RWN reflects the potential for the bank’s creditworthiness relative to other entities on the Sri Lankan national ratings scale to further deteriorate amid the likelihood of capital and funding stress as the default risk on domestic debt increases while access to foreign-currency funding remains constrained.