The Long-Term Issuer Default Ratings (IDRs) on National Savings Bank and Bank of Ceylon (BOC) have been affirmed at ‘BB-’ and their National Long-Term Ratings have been affirmed at ‘AAA(lka)’ and ‘AA+(lka)’, respectively. Fitch has also affirmed the National Long-Term Rating of People’s Bank at ‘AA+(lka)’.
At the same time, Fitch has affirmed the Long-Term IDRS of DFCC Bank and National Development Bank PLC (NDB) at ‘B+’ and their National Long-Term Ratings at ‘AA-(lka)’. The National Long-Term Ratings of Commercial Bank of Ceylon PLC (Commercial Bank) have been affirmed at ‘AA(lka)’. The National Long-Term Ratings of Hatton National Bank PLC (HNB), Sampath Bank PLC and DFCC Vardhana Bank Ltd. have been affirmed at ‘AA-(lka)’.
“The operating environment, which remains potentially volatile, is a key rating driver for the Sri Lankan banking sector,” Fitch said. This is a challenge for banks, notwithstanding the current high real GDP growth, which Fitch expects to continue.
While private-sector credit demand is currently muted, the potential for high growth exists given the low overall levels of credit to GDP. Rapid credit growth – including pawning (gold-backed lending) – in the past raised Fitch’s Macro-Prudential Indicator for Sri Lanka into the highest ‘3’ category. The consequence of this was a rise in NPLs in the banking system.
Fitch said it does not expect the deterioration in the banks’ asset quality stemming from NPLs from gold-backed lending to persist given the relatively short life cycle of the product.(From DailyFT)