INSUBCONTINENT EXCLUSIVE:
Fitch Ratings has placed 13 state- and privately- owned banks in Sri Lanka on Rating Watch Negative (RWN), due to the foreign currency
stress experienced by the banking system.In a statement, the New York-based credit rating agency said the RWN reflects heightened near-term
Long-Term Local-Currency IDR: CCC) and the ensuing risks to the stability of the financial system, it read further.The Fitch Ratings said
foreign currency.The credit rating agency also stated that it aims to resolve the RWN in the next six months, depending on the evolution of
and deposit dollarisation for the sector was at 18% of total loans and 17% of total deposits as at end-2021The full statement issued by
Fitch Ratings is as follows:Fitch Ratings has placed the National Long-Term Ratings of 13 Sri Lankan banks on Rating Watch Negative (RWN)
Bank PLC-DFCC Bank PLC-Seylan Bank PLC-Nations Trust Bank PLC-Pan Asia Banking Corporation PLC-Union Bank of Colombo PLC-Amana Bank
PLC-SANASA Development Bank PLC-Housing Development Finance Corporation Bank of Sri Lanka (HDFC)A full list of rating actions is at the end
of this rating action commentary
Fitch will review the National Ratings of Sri Lankan financial institutions that are not mentioned in this commentary separately
Fitch has also taken rating action on Bank of Ceylon; please see Fitch Places Bank of Ceylon on Rating Watch Negative.KEY RATING DRIVERSThe
RWN reflects heightened near-term downside risk stemming from constrained access to foreign-currency funding and the resulting indications
of stress experienced by the banks in the system
Local-Currency IDR: CCC) and the ensuing risks to the stability of the financial system.We believe mounting currency stress increases the
does not have any outstanding foreign-currency obligations - and local currency in the event of a sovereign default, or prior, should
are prone to sudden changes amid already weak creditor sentiment
environment remains challenging and our negative outlook on the score reflects the significant near- to medium-term downside risk presented
Macroeconomic challenges are likely to be greater than we initially anticipated which could result in a sharp deterioration in asset quality
Sri Lanka rupee-denoted senior debt, where applicable, is rated at the same level as the National Long-Term Rating in accordance with Fitch
ratings of subordinated debt, where assigned, also stems from the RWN on the corresponding National Long-Term Ratings
This is in line with our baseline notching for loss severity for this type of debt and our expectations of poor recovery.RATING
SENSITIVITIESFactors that could, individually or collectively, lead to negative rating action/downgrade:The RWN reflects rising risks to the
standstill agreement following a payment default on a large financial obligation- where Fitch believes a bank has entered into a grace or
cure period following non-payment of a large financial obligation.A downgrade of the sovereign rating stemming from a default event could
RatingFactors that could, individually or collectively, lead to positive rating action/upgrade:There is limited scope for upward rating
action given the RWN.PB has a 1.78% equity stake in Fitch Ratings Lanka Ltd
No shareholder other than Fitch, Inc
is involved in the day-to-day rating operations of, or credit reviews undertaken by, Fitch Ratings Lanka Ltd.
This article first appeared/also appeared in https://adaderana.lk
