BOC’s FCY ratings upgraded to “CCC-” by Fitch

Bank of Ceylon’s (BOC) Long-Term Foreign Currency Issuer Default Rating (IDR) has been upgraded to ‘CCC-’ from ‘CC’ by Fitch Ratings (Fitch) in their latest rating review. Further, the Viability Rating (VR) was also upgraded to ‘ccc-’ from ‘cc’ by removing the Rating Watch Negative (RWN) on VR. 

This rating upgrade signifies the Bank’s stability amidst the challenging operating environment and the Bank’s ratings are further positioned above the country ratings showcasing the resilience of the Bank. 

According to the latest announcement made by Fitch by upgrading BOC’s international rating, Fitch has considered the following factors in order to support their rating action;

Fitch noted that the foreign currency funding and liquidity profile of the Bank has significantly improved compared to the crisis period and will be further strengthen with the restoration of the sovereign’s creditworthiness, following a successful debt restructuring and thereby providing the Bank, the access to foreign currency wholesale funding.

The Bank’s profitability will be further improved in line with final restructuring terms of the sovereign instruments and state-linked borrowing. The asset-quality of the Bank will be enhanced during 2025 due to better economic conditions of the country and the potential capacity of the Bank to enrich its credit portfolio. 

Further, Fitch has noted that the final terms and conditions agreed by the Bank and the Government in restructuring loans granted to state-owned entities will reduce the stress on its capital and impairment provisioning of the Bank. In terms of Bank’s risk profile, it is expected that the conclusion of sovereign debt restructuring and the Bank’s focus on expanding private-sector lending will moderate the exposure to the sovereign in the medium term. Fitch noted that no extraordinary support to restore viability of the Bank is required considering the advanced stages of the Government’s efforts to restructure the debt granted to state-owned entities. Following the successful debt restructuring, Sri Lankan banks’ operating environment (OE), positively impacted given the strong link between sovereign financial health and banks’ operating conditions.

In conclusion, BOC’s VR is highly influenced by the operating environment and its effect on financial and non-financial key rating factors. The upgrade of Foreign Currency IDR is driven by the upgrade of its VR, and both remain above Sri Lanka’s Foreign Currency IDR. This reflects Fitch’ view of a lower risk that the authorities will impose restrictions on the Bank servicing its foreign currency obligations despite the sovereign being in default. 

BOC, being the No. 1 Bank in Sri Lankan Banking industry, its commitment goes beyond mere financial transactions and extends to building lasting relationships, fostering financial empowerment and inclusion.

During the first nine months of 2024, BOC demonstrated impressive financial performance, achieving a Profit Before Tax (PBT) of Rs. 37.6 billion with 66% YoY substantial growth, illustrating the Bank’s resilience in challenging economic environment. 

As of the end September 2024, the Bank maintained a strong financial position, with total Assets amounting to Rs. 4.6 trillion and total Deposits of Rs. 4.0 trillion. Notably, Gross Loans and Advances amounted to Rs. 2.3 trillion, and total Investments amounted to Rs. 2.1 trillion. 

The Bank has preserved Capital Adequacy ratios and Liquidity ratios well above the statutory requirements at the end of 3Q-2024.

BOC listed among the Top 1000 World Banks in the year 2024 is a proof of commitment to its financial stability and innovation. These recognitions highlight BOC’s role as a trusted partner for its customers and dedication to drive economic growth in Sri Lanka. BOC remains focused on delivering superior banking solutions and maintains its leadership position in the industry.