Fitch rates HNB’s deep-discount Rs. 3 b debentures ‘AA-(EXP)’
Monday, 1 July 2013 00:24
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Fitch Ratings has assigned Sri Lanka-based Hatton National Bank PLC’s (HNB; AA-(lka)/Stable) proposed issue of unsecured, redeemable debentures of up to Rs. 3 billion an expected National Long-Term rating of ‘AA-(lka)(EXP)’.
HNB expects to list the debentures subject to regulatory approvals. The final rating is contingent upon the receipt of final documentation conforming to information already received.
The proposed debentures are rated at the same level as HNB’s National Long Term Rating as they will constitute direct, unconditional, unsecured and unsubordinated obligations of the bank. The debentures are expected to have a tenure of 10 years with a bullet principal payment at maturity and will be issued at Rs. 67.715 per Rs. 100 face value.
HNB expects to use the proceeds to fund its lending activities.
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. However, HNB exhibits weaker asset quality than higher-rated peers, as reflected in higher and more volatile non-performing loan (NPL) ratios and lower provisions coverage, which constrain its ratings.
A notable increase in HNB’s risk appetite, or a weakening of underwriting standards, which results 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 non-performing loans 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. 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 www.fitchratings.com and www.fitchratings.lk.
