Fitch rates Pan Asia Banking’s proposed senior debt ‘BBB(lka)(EXP)’

Fitch Ratings has yesterday assigned Pan Asia Banking Corporation Plc’s (PABC; BBB(lka)/Negative) proposed listed senior unsecured debentures of up to Rs. 4 b a National Long-Term rating of ‘BBB(lka)(EXP)’. 

The proposed issuance is likely to have tenors of three and four years, with a combination of fixed-rate and floating-rate coupons. PABC expects to use the proceeds to reduce structural maturity mismatches, diversify the funding mix and secure medium-term funding. The debentures are to be listed on the Colombo Stock Exchange. 

Fitch will assign a final rating to the issue subject to the receipt of final transaction documents conforming to information already received.

Key rating drivers: National ratings and senior debt – The proposed issue is rated in line with PABC’s National Long-Term Rating of ‘BBB(lka)’, as they will rank equally with the bank’s other senior unsecured creditors. 

PABC’s rating reflects its weak capitalisation amid rapid growth in its loan book. The rating also takes into account the bank’s weak asset quality relative to higher rated peers, moderate franchise and improving profitability due to an expanding current and savings account base that helped to drive higher net interest margins. 

Rating sensitivities: National ratings and senior debt – The debt ratings will move in tandem with PABC’s National Long-Term Rating. 

Failure to reverse the trend of deterioration in the capital ratios by end-2015 and to materially enhance its loss absorption buffers would lead to a downgrade of PABC’s rating. 

However, the rating would remain at the current level if PABC is able to significantly and sustainably improve its capitalisation, mostly likely through a timely capital infusion and slower growth in its loan book.