Fitch rates Hatton National Bank’s Basel III subordinated debt at ‘BBB+(EXP)

Fitch Ratings has assigned Hatton National Bank PLC’s (HNB, A(lka)/Stable) proposed Sri Lankan rupee-denominated Basel III-compliant subordinated debentures of up to Rs. 12 billion an expected National Long-Term Rating of ‘BBB+(EXP)(lka)’.

The proposed debentures, which will have maturities of five, seven and 10 years, will be listed on the Colombo Stock Exchange. The bank plans to use the proceeds to further strengthen its Tier 2 capital base, support loan growth and reduce maturity mismatches in the balance sheet. It 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.

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

Fitch rates the proposed Basel III Tier 2 notes two notches below the bank’s National Long-Term Rating of ‘A(lka)’. 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 proposed notes do not incorporate going-concern loss-absorption features.

HNB’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.