(The following statement was released by the rating agency)
COLOMBO/HONG KONG, March 02
(Fitch) Fitch Ratings Lanka has assigned National Development Bank PLC's (NDB; AA-(lka)/Stable) proposed senior debentures of up to LKR7.5bn an expected National Long-Term Rating of 'AA-(lka)(EXP)'. The debentures, which will have a tenor of five years and carry fixed coupons, will be listed on the Colombo Stock Exchange. Fitch expects NDB to use the proceeds to refinance maturing multilateral funding. The final rating is subject to the receipt of final documentation conforming to information already received.
KEY RATING DRIVERS
The proposed debentures are rated at the same level as NDB's National Long-Term Rating in accordance with Fitch's criteria as they constitute unsecured and unsubordinated obligations of the bank. The issuer rating is driven by the bank's intrinsic financial strength. It captures NDB's long and stable operating history and its developing franchise as a commercial bank. NDB has continued to sustain better asset quality than its peers. However, Fitch expects NDB's asset quality to weaken alongside the seasoning of the loan book, as is already evident in an uptick in its reported gross NPL ratio to 2.5% at end-2014 from 2.4% at end-2013. Its loan composition is likely to remain stable, dominated by corporate banking at 48%, with retail banking and SMEs accounting for 36% and project finance accounting for a further 14% at end-2014. Capitalisation has deteriorated towards levels of its commercial bank peers as NDB's 27.7% loan growth in 2014 materially exceeded the average 13.7% growth for the banking sector. As a result, NDB's Fitch core capital ratio declined to 13.7% at end-2014 (2013: 15.2%). It also resulted in a high loans/deposits ratio of 119% at end-2014, with the bank relying on funding from multilateral agencies (16% of funding at end-2014). NDB's ratio of current and savings accounts to total deposits has remained low at 24% at end-2014.
RATING SENSITIVITIES
The rating on the proposed debentures will move in tandem with NDB's National Long-Term Ratings. Fitch believes that NDB's capitalisation and its rating would come under pressure if the bank sustains its growth momentum, in the absence of other mitigating factors. The consolidation of NDB's franchise alongside its ability to sustain strong credit metrics could result in an upgrade of NDB's ratings. NDB's merger discussions with DFCC Bank PLC (B+/Stable/AA-(lka)) appear to have slowed as the authorities' stance following the change in presidency earlier this year remains unclear. Fitch is of the view that synergies from such an amalgamation would be credit neutral for both banks in the short to medium term.
A full list of NDB's ratings follows:
Long-Term Foreign- and Local-Currency IDRs: 'B+'; Stable Outlook Short-Term Foreign-Currency IDR: 'B' Viability Rating: 'b+' Support Rating : '4' Support Rating Floor: 'B' National Long-Term Rating: 'AA-(lka)'; Stable Outlook Outstanding subordinated debentures: 'A+(lka)' Proposed senior debentures: 'AA-(lka)(EXP)'
For more details on NDB's ratings and credit profile, see the full rating report dated 22 August 2014, available at www.fitchratings.com.
Contacts: Primary Analyst Rukshana Thalgodapitiya Vice President +94 1 1254 1900 Fitch Ratings Lanka Limited Level 15-04, East Tower, World Trade Center Colombo 01, Sri Lanka Secondary Analyst Jeewanthi Malagala Analyst +94 1 1254 1900 Committee Chairperson Sabine Bauer Senior Director +852 2263 9966 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com.
NDB has a 1.79% 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. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Additional information is available on www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, "National Scale Ratings Criteria", dated 30 October 2013, "Assessing and Rating Bank Subordinated and Hybrid Securities", dated 31 January 2014, and "Evaluating Corporate Governance", dated 12 December 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Evaluating Corporate Governance here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
COLOMBO/HONG KONG, March 02
(Fitch) Fitch Ratings Lanka has assigned National Development Bank PLC's (NDB; AA-(lka)/Stable) proposed senior debentures of up to LKR7.5bn an expected National Long-Term Rating of 'AA-(lka)(EXP)'. The debentures, which will have a tenor of five years and carry fixed coupons, will be listed on the Colombo Stock Exchange. Fitch expects NDB to use the proceeds to refinance maturing multilateral funding. The final rating is subject to the receipt of final documentation conforming to information already received.
KEY RATING DRIVERS
The proposed debentures are rated at the same level as NDB's National Long-Term Rating in accordance with Fitch's criteria as they constitute unsecured and unsubordinated obligations of the bank. The issuer rating is driven by the bank's intrinsic financial strength. It captures NDB's long and stable operating history and its developing franchise as a commercial bank. NDB has continued to sustain better asset quality than its peers. However, Fitch expects NDB's asset quality to weaken alongside the seasoning of the loan book, as is already evident in an uptick in its reported gross NPL ratio to 2.5% at end-2014 from 2.4% at end-2013. Its loan composition is likely to remain stable, dominated by corporate banking at 48%, with retail banking and SMEs accounting for 36% and project finance accounting for a further 14% at end-2014. Capitalisation has deteriorated towards levels of its commercial bank peers as NDB's 27.7% loan growth in 2014 materially exceeded the average 13.7% growth for the banking sector. As a result, NDB's Fitch core capital ratio declined to 13.7% at end-2014 (2013: 15.2%). It also resulted in a high loans/deposits ratio of 119% at end-2014, with the bank relying on funding from multilateral agencies (16% of funding at end-2014). NDB's ratio of current and savings accounts to total deposits has remained low at 24% at end-2014.
RATING SENSITIVITIES
The rating on the proposed debentures will move in tandem with NDB's National Long-Term Ratings. Fitch believes that NDB's capitalisation and its rating would come under pressure if the bank sustains its growth momentum, in the absence of other mitigating factors. The consolidation of NDB's franchise alongside its ability to sustain strong credit metrics could result in an upgrade of NDB's ratings. NDB's merger discussions with DFCC Bank PLC (B+/Stable/AA-(lka)) appear to have slowed as the authorities' stance following the change in presidency earlier this year remains unclear. Fitch is of the view that synergies from such an amalgamation would be credit neutral for both banks in the short to medium term.
A full list of NDB's ratings follows:
Long-Term Foreign- and Local-Currency IDRs: 'B+'; Stable Outlook Short-Term Foreign-Currency IDR: 'B' Viability Rating: 'b+' Support Rating : '4' Support Rating Floor: 'B' National Long-Term Rating: 'AA-(lka)'; Stable Outlook Outstanding subordinated debentures: 'A+(lka)' Proposed senior debentures: 'AA-(lka)(EXP)'
For more details on NDB's ratings and credit profile, see the full rating report dated 22 August 2014, available at www.fitchratings.com.
Contacts: Primary Analyst Rukshana Thalgodapitiya Vice President +94 1 1254 1900 Fitch Ratings Lanka Limited Level 15-04, East Tower, World Trade Center Colombo 01, Sri Lanka Secondary Analyst Jeewanthi Malagala Analyst +94 1 1254 1900 Committee Chairperson Sabine Bauer Senior Director +852 2263 9966 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com.
NDB has a 1.79% 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. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Additional information is available on www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, "National Scale Ratings Criteria", dated 30 October 2013, "Assessing and Rating Bank Subordinated and Hybrid Securities", dated 31 January 2014, and "Evaluating Corporate Governance", dated 12 December 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Evaluating Corporate Governance here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
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