Home / Financial Services/ Fitch rates Sampath Bank’s Basel III sub. debt. final ‘A (lka)’

Fitch rates Sampath Bank’s Basel III sub. debt. final ‘A (lka)’


Comments / {{hitsCtrl.values.hits}} Views / Wednesday, 7 March 2018 00:00


Fitch Ratings has assigned Sampath Bank PLC’s (A+ (lka)/Negative) proposed Basel III compliant subordinated debentures a National Long-Term Rating of ‘A (lka).’  

The notes will total Rs. 7.5 billion, mature in five years and carry fixed coupons. The notes include a non-viability clause and will qualify as regulatory Tier II capital for the bank. The bank plans to use the proceeds to strengthen its Tier II capital base and support its loan book expansion. The debentures are to be listed on the Colombo Stock Exchange.  

The final rating is the same as the expected rating assigned on 11 January, and follows the receipt of documents conforming to information already received.  

Key rating drivers

Fitch rates the proposed Tier II instrument one notch below the bank’s National Long-Term Rating of ‘A+(lka)’ to reflect the notes’ subordinated status and higher loss-severity risks relative to senior unsecured instruments. The notes would convert to equity upon the occurrence of a trigger event, as determined by the Monetary Board of Sri Lanka.  

Sampath’s National Long-Term Rating is used as the anchor rating because the rating reflects the bank’s standalone financial strength. Fitch believes that the bank’s standalone credit profile best indicates the risk of becoming non-viable.   

Fitch has not applied additional notching to the notes for non-performance risk, as they have no going-concern loss-absorption features, in line with Fitch’s criteria.   

Sampath’s National Long-Term Rating was affirmed on 21 December 2017, factoring in Fitch’s expectation that the bank is in the process of shoring up capitalisation to meet the tighter requirements of 10.0% Tier 1 and 14.0% total capital ratios by 1 January 2019. The bank’s regulatory Tier 1 and total capital ratios were 10.3% and 14.4%, respectively, at end-2017.   

In December 2017, Sampath raised Rs. 7.6 billion and Rs. 6 billion, via a rights issue and Basel III compliant subordinated debenture issuance, respectively. In addition to the proposed subordinated debenture issuance of up to Rs. 7.5 billion, the bank has announced a further Rs. 12.5 billion rights issue for 2018 as part of its medium-term capital plan.  

However, the Negative Outlook reflects Fitch’s view that Sampath could find it challenging to improve its capitalisation if it fails to successfully execute its medium-term capital plan while maintaining high loan growth of over 20.0%, which we expect for 2018 to 2020. Sampath’s gross loan growth of 18.2% in 9M17 continues to outpace the industry’s 11.9% growth (Sampath 2016: 22.1%, industry 2016: 17.5%) and Fitch expects this trend to continue alongside the bank’s pursuit of market share.  

Rating sensitivities

The rating of the notes would move in tandem with Sampath’s National Long-Term Rating.  

Fitch would downgrade Sampath’s rating if the bank is unable to maintain capital buffers commensurate with its risk profile and operating environment-related risks over the medium term. We would revise the Outlook to Stable if the bank successfully implements its capital enhancement plan to improve its capital profile.


Share This Article


DISCLAIMER:

1. All comments will be moderated by the Daily FT Web Editor.

2. Comments that are abusive, obscene, incendiary, defamatory or irrelevant will not be published.

3. We may remove hyperlinks within comments.

4. Kindly use a genuine email ID and provide your name.

5. Spamming the comments section under different user names may result in being blacklisted.

COMMENTS

Today's Columnists

In the desert of Tamil films, actor Sivaji Ganesan was an oasis

Saturday, 22 September 2018

‘Indian Film,’ first published in 1963 and co-authored by former Columbia University Professor Erik Barnouw and his student Dr. Subrahmanyam Krishnaswamy, is considered a seminal study of the evolution and growth of Indian cinema. The book is cit


Imran may turn blind eye to blasphemy law and persecution of Ahmadiyyas

Saturday, 22 September 2018

There are clear signs that Pakistan’s freshly minted Prime Minister, Imran Khan, will make a sincere effort to reduce corruption and maladministration in the domestic sphere. In foreign affairs he is likely to make a brave attempt to mend fences wi


The rate of exchange, capital flight and the Central Bank

Friday, 21 September 2018

The Central Bank (CBSL) exists for the sole purpose of price stability. Its controls on the financial system and monetary policy exist to maintain price stability. As put forth many times by the Governor, the failing of the CBSL to control inflation


Red flag over the Sri Lankan Navy

Friday, 21 September 2018

Shocking story Rusiripala, a former banker in Sri Lanka, who has taken to writing in Daily FT, is perturbed by the red flag I have raised (Daily FT article 18 September) over the shocking charge that our Navy had operated a ransom gang that had abduc


Columnists More