Fitch affirms Citibank Colombo Branch at AAA’; Outlook Stable

Friday, 23 April 2021 00:00 - - {{hitsCtrl.values.hits}}

Fitch Ratings Lanka has affirmed Citibank N.A. – Colombo Branch's (CitiSL) National Long-Term Rating at 'AAA(lka)'. The Outlook is Stable.

CitiSL's rating reflects Fitch's expectation of continued timely support for CitiSL from the US-based head office, if required, subject to any regulatory constraints on remitting funds into Sri Lanka.

The Fitch assessment captures CitiSL's status as a branch of Citibank, N.A. (A+/Negative/a), which means it is part of the same legal entity. The high probability of support also stems from the alignment of CitiSL's objectives and strong operational integration with Citigroup. The small size of the branch, at less than 1% of Citibank, N.A.'s total assets, implies that support would not be material to the head office.

Citibank, N.A.'s rating and CitiSL's relative credit worthiness are higher compared to the vast majority of Sri Lanka's rated universe of issuers, including the sovereign (CCC); as a result, CitiSL's rating is at the highest end of the National Rating scale for Sri Lanka.

CitiSL's record of a zero non-performing level for asset quality has remained intact since 2009 despite the challenging operating environment. This reflects CitiSL's stringent underwriting standards that focus mainly on selective lending to top-tier local and multinational corporates and financial institutions. Profitability remained under pressure, albeit better than local peers, with narrower interest margins amid the low interest environment.

The common equity Tier 1 capital ratio of 24.5% - higher than local peers – at endSeptember 2020 and the ability to access funding from Citigroup, if required, makes CitiSL's financial profile better than that of local peers. Moreover, any weaker financial performance at CitiSL will not have any bearing on support prospects from head office.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

There is no rating upside for the National Long-Term Rating, as it is already at the highest point on the scale.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

CitiSL's rating is most likely to be downgraded on significant changes to Fitch's expectation of support from Citibank, N.A., such as a change in the branch's legal status or the branch being divested. Downward rating pressure could also result should Citibank, N.A.'s Long-Term IDR fall below 'BB-', although Fitch sees that as highly unlikely in the near to medium term.

Significant change in National Rating relativities in Sri Lanka's rating universe could also lead to a downgrade of CitiSL's National Rating.