Fitch affirms Citibank N.A. Colombo Branch at ‘AAA’; Outlook Stable

Monday, 4 May 2020 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.

The affirmation reflects CitiSL’s status as a branch of Citibank, N.A. (A+/Negative/a), which means it is part of the same legal entity. Fitch expects continued timely support for CitiSL from its US-based head office, if required, subject to any regulatory constraints on remitting funds into Sri Lanka. 

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’s total assets, implies that support would not be material to the head office.

Citibank, N.A.’s credit profile is superior to Sri Lanka’s rated universe of issuers, including the sovereign (B-/Negative); as a result, CitiSL’s rating is at the highest end of the National Rating scale for Sri Lanka.

The economic fallout from the COVID-19 pandemic will pressure CitiSL’s earnings and profitability, with lower fee-based income, muted loan growth and higher credit costs. We also see an increased risk of deterioration in CitiSL’s asset quality, albeit from currently zero non-performing levels, if the disruption is prolonged. 

Nonetheless, CitiSL’s higher than- local-peer common equity Tier 1 capital ratio of 27.6% at end-2019 and ability to access funding from Citigroup, if required, makes the branch’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 could be downgraded if Citibank, N.A.’s rating falls below Sri Lanka’s Issuer Default Rating, although Fitch sees that as highly unlikely in the near to medium term. Significant changes to Fitch’s expectation of support from Citibank, such as a change in legal status, could also negatively affect the rating.

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