Fitch rates Nations Trust Bank’s proposed sub debt ‘A-’

Tuesday, 12 July 2011 00:00 - - {{hitsCtrl.values.hits}}

Fitch Ratings Lanka has assigned Nations Trust Bank PLC’s (NTB) proposed subordinated debentures of up to LKR2bn a National Long-Term rating of ‘A-(lka)’. The bank’s other ratings are provided at the end of this commentary.

The issue is rated one notch below NTB’s National Long-Term rating. The proposed debentures have a maturity of five years with principal repayment as a bullet payment, and have both fixed and floating coupons to be paid semi-annually. Following a private placement, they are to be listed on the Colombo Stock Exchange by way of an introduction.

The issuance is to be used to access alternative funding sources other than deposits, reduce maturity mismatches between assets and liabilities, and strengthen NTB’s Tier II capital base. NTB’s ratings take into account its evolving franchise within most business segments, healthy profitability, and its improved capital position.

Fitch also notes that the bank’s loan book contains a high proportion of consumer products and leases.

The ratings could be upgraded if there is continued consolidation of NTB’s lending and deposit franchise as well as of its risk management processes and controls, together with a sustained healthy capital structure.

Conversely, a rating downgrade could result from an unexpected weakening of NTB’s asset quality or earnings, although this is less likely over the medium-term.

NTB accounted for 2% of total licensed commercial bank assets in Sri Lanka at FYE10 (financial year ended 31 December 2010). The John Keells group and the Central Finance group hold 29.9% and 20% of NTB’s equity, respectively.