Fitch rates Pan Asia Banking’s Senior Debt Final ‘BBB’

Tuesday, 28 July 2015 00:06 - - {{hitsCtrl.values.hits}}

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

The final rating is the same as the expected rating assigned on 17 June, and follows the receipt of documents conforming to information already received.

The debentures will have maturities 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.

Key rating drivers

National ratings and senior debt

The issue is rated in line with PABC’s National Long-Term Rating of ‘BBB(lka)’, as it will rank equally with the claims of 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

The rating of the issue 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.