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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Nations Trust Bank's planned Rs3bn junior debt rated 'A-(lka)': Fitch

Nations Trust Bank's planned Rs3bn junior debt rated 'A-(lka)': Fitch

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Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
Oct 31, 2013 (LBO) - Fitch Ratings said a 3.0 billion rupees subordinated debt offer of Sri Lanka's Nations Trust Bank has been given an expected 'A-(lka)' rating.

The rating agency also confirmed a 'A(lka)' long term rating of the bank, which is a notch higher, with a stable outlook.'

"The ratings reflect NTB's broadly stable credit profile, its evolving franchise and on-going process improvements, which are counterbalanced by its increasing exposure to segments that are more susceptible to economic cycles," Fitch said.

"They also capture Fitch's view that the bank's medium-term strategic plan can be successfully implemented and that it will help the bank to improve its franchise despite the weak and volatile macroeconomic environment.

"Aggressive implementation of the strategic plan may, however, increase the bank's risk profile."

NTB's loans grew 5 percent in the first six months, from 20 percent in 2012, amid a slowdown in the overall sector growth.

NTB's Gross non-performing loan (NPL) ratio (including suspended interest) had increased to 5.1 percent by the first half from 3.9 percent driven mainly by leasing.

Its regulatory NPL ratio had increased to 4 percent in the first half (end-2012: 2.8%).

Fitch said the bank's loan-loss provisioning in terms of regulatory provisioning and impairment provisioning remained lower than the average of higher-rated peers.

Fitch Affirms Nations Trust Bank at 'A(lka)'/Stable Ratings Endorsement Policy

31 Oct 2013 2:30 AM (EDT) Fitch Ratings-Colombo-31 October 2013:

Fitch Ratings Lanka has affirmed Sri Lanka-based Nations Trust Bank PLC's (NTB) National Long-Term Rating at 'A(lka)'. The Outlook is Stable.

Fitch has also affirmed NTB's subordinated debt at 'A-(lka)' and assigned an expected rating of 'A-(lka)(EXP)' to its proposed subordinated debentures of up to LKR3bn.

The final rating of the subordinated debentures is contingent upon receipt of final documents conforming to information already received.

KEY RATING DRIVERS

The ratings reflect NTB's broadly stable credit profile, its evolving franchise and on-going process improvements, which are counterbalanced by its increasing exposure to segments that are more susceptible to economic cycles.

They also capture Fitch's view that the bank's medium-term strategic plan can be successfully implemented and that it will help the bank to improve its franchise despite the weak and volatile macroeconomic environment. Aggressive implementation of the strategic plan may, however, increase the bank's risk profile.

NTB's exposure to SME/retail, leasing and credit card customers increased further in 2012, as it made efforts to step up lending to these segments in line with the strategic plan. At the same time, the banks' corporate loan book contracted as it struggled against competition from more established peers. Fitch is of the view that increasing exposure to segments that are susceptible to economic cycles could put more pressure on NTB's asset quality because of the slowing macroeconomic environment.

NTB's loan growth remained subdued during first six months of 2013 at 5% (2012: 20%, 2011: 37%). Fitch expects the loan growth in the industry to be moderate for the remainder of 2013 and the first half of 2014. NTB's Gross non-performing loan (NPL) ratio (including suspended interest) increased to 5.1% at end-H113 from 3.9% at end-2012, driven mainly by more leasing NPLs. Its regulatory NPL ratio increased to 4% at end-H113 (end-2012: 2.8%). Loan-loss provisioning in terms of regulatory provisioning and impairment provisioning remained lower than the average of higher-rated peers.

The bank's net interest margin (NIM) improved marginally in H113 to 6.4% from 5.8% in 2012, due to lower cost of deposits and higher yields on securities investments. NTB's NIM is higher than that of its peers, a reflection of its portfolio, which is exposed to higher-yielding customer segments.

NTB's loan/deposit ratio improved to 86.5% at end-H113 amid lower credit growth, from 87.3% at end-2012 and 92.7% at end 2011. However, NTB's low-cost deposit base relative to its total deposits remained lower than higher-rated peers.

The subordinated debt is rated one notch lower than the issuer rating to reflect its gone-concern loss-absorption quality in the event of liquidation, in line with Fitch's criteria for rating such securities.

RATING SENSITIVITIES

An upgrade is contingent upon NTB demonstrating progress in building a strong commercial banking franchise, which will enhance the stability of its funding profile and help achieve capital and asset quality levels in line with higher-rated commercial banks.

An increase in risk appetite in conjunction with its efforts to speedily implement its strategic plan by expanding in segments that are susceptible to economic cycles, could result in a rating downgrade. Aggressive loan growth or loan pricing leading to weaker asset quality or weaker capitalisation would be key indicators of this.

The subordinated debt rating will move in tandem with NTB's Long-term rating.

http://www.lankabusinessonline.com/news/nations-trust-banks-planned-rs3bn-junior-debt-rated-a-(lka):-fitch/634750757

Gaudente


Manager - Equity Analytics
Manager - Equity Analytics
any hint about yield offered ?

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Anyone analysed this .....

The weak franchise of NTB inhibits retail credit creation. A strong dependence on leasing and credit card portfolios

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