Fitch rates Bank of Ceylon’s Rs. 15 b Basel III subordinated debt ‘A (EXP)’

Monday, 7 April 2025 05:06 - - {{hitsCtrl.values.hits}}

Fitch Ratings has assigned Bank of Ceylon’s (BOC) (CCC+/CCC+/AA-(lka)/Stable) proposed Basel III-compliant subordinated unsecured debentures of up to Rs. 15 billion an expected national long-term rating of ‘A(EXP)(lka)’.

The proposed debentures will mature in five years and be listed on the Colombo Stock Exchange. The bank plans to use the proceeds to strengthen its Tier 2 capital base and liquidity position, bridge maturity mismatches, and support the expansion of its asset base.

The proposed debentures will qualify as Basel III-compliant regulatory Tier 2 capital. The debentures include a non-viability clause whereby the notes will be converted to an Additional Tier 1 (AT1) instrument on a permanent basis, subject to the occurrence of a trigger event, as determined by the Governing Board of the Central Bank of Sri Lanka.

The final rating is subject to the receipt of final documentation conforming to information already received.

Fitch listed the following as key rating drivers:

BOC’s Sri Lankan rupee-denominated subordinated debt is rated two notches below the bank’s National Long-Term Rating anchor. This reflects Fitch’s baseline notching for loss severity for this type of debt, and our expectations of poor recoveries upon non-performance. There is no additional notching for non-performance risks as the notes do not incorporate going-concern loss-absorption features and will only convert to AT1 at the point of non-viability.

Fitch assumes that the authorities would step in late, moving the point of non-viability close to liquidation. The notes also do not have contingent conversion or write-down triggers that create moderate or high incremental non-performance risk relative to the anchor.

BOC’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.

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