Fitch rates HNB’s deep-discount debentures final ‘AA-’
Tuesday, 23 July 2013 00:49
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Fitch Ratings has assigned Sri Lanka-based Hatton National Bank PLC’s (HNB; AA-(lka)/Stable) issue of unsecured, redeemable debentures of up to Rs. 3 b a final National Long-Term rating of ‘AA-(lka)’.
The assignment of the final rating follows the receipt of final documents which conform to information previously received. The final rating is at the same level as the expected rating assigned on 28 June 2013.The debentures are rated at the same level as HNB’s National Long Term Rating as they constitute direct, unconditional, unsecured and unsubordinated obligations of the bank.
The debentures have a tenor of 10 years with a bullet principal payment at maturity and are issued at Rs. 67.715 per Rs. 100 face value. Coupon payments are fixed at 8% per annum and paid annually. HNB is using the proceeds to fund its lending activities.
Key Rating Drivers
HNB’s ratings reflect its strong domestic franchise in lending and deposit mobilisation as the fourth-largest bank in Sri Lanka, as well as its satisfactory capitalisation and operating performance. The ratings are constrained by HNB’s weaker asset quality than higher-rated peers, as reflected in its higher and more volatile non-performing loan (NPL) ratios (3MFY13: 4.86%, FYE12: 3.66%) and lower provisions coverage.
Rating sensitivities
A notable increase in HNB’s risk appetite, or a weakening of underwriting standards, which result in more volatile financial performance and asset quality could lead to a downgrade.
In particular, a weakening of asset quality accompanied by a faster-than-expected drop in both capitalisation and provisions for NPLs could also lead to downward rating pressure.
HNB has higher business risk than higher-rated peers, stemming from its higher exposure to retail and SME loans which exhibit higher delinquencies. Consequently the bank’s asset quality swings have been more pronounced.
This, combined with weak economic conditions at present, leads Fitch to believe that potential for a rating upgrade is limited in the medium-term. For more details on HNB’s ratings and credit profile, please refer to www.fitchratings.com and www.fitchratings.lk.
