Tuesday, 17 September 2013 00:40
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Fitch Ratings Lanka has affirmed Citibank N.A. – Colombo Branch’s (CitiSL) National Long-Term rating at ‘AAA(lka)’. The Outlook is Stable.
Key rating drivers
CitiSL’s rating is at the highest end of the National Rating Scale and reflects the financial strength of Citibank N.A. (Citibank; A/Stable), given CitiSL’s legal status as a branch of Citibank and that both are part of the same legal entity. Thus, Fitch believes that support from Citibank would be forthcoming if required, subject to any regulatory constraints on remitting money into Sri Lanka.
Citibank’s rating is higher than Sri Lanka’s Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs), both at of ‘BB-’/Stable, and CitiSL’s rating is therefore mapped to ‘AAA(lka)’ on the National Rating scale.
The branch’s strategic objectives are aligned to those of the group. Its focus is on a narrowly defined corporate customer base, resulting in high concentration risk. However, CitiSL has consistently maintained sound asset quality with no non-performing loans since 2009.
Its loan book contracted by 18% in H113 and 9% in 2012, in contrast to loan expansion in the overall banking system, reflecting CitiSL’s focus on exposures that meet the group’s return parameters. It is likely that even though most corporate exposures are booked on CitiSL’s balance sheet, its reported performance may not fully reflect its strategic importance to the group.
CitiSL funds its operations predominantly through corporate deposits and equity, and hence it is less dependent on intragroup funding. Fitch expects CitiSL to continue to repatriate profits because of its strong capital position, with equity-to-assets and Fitch core capital ratio standing at 38% and 43% respectively as at end-June 2013.
Rating sensitivities
A downgrade of CitiSL’s rating could result if Citibank’s rating were to fall below Sri Lanka’s IDRs. Any changes to Fitch’s expectation of support from Citibank could also be negative for the rating. Citibank established local operations in 1979, and operates through a single branch.
