Fitch affirms HSBC Sri Lanka Branch at ‘AAA’; Outlook Stable
Friday, 28 March 2014 00:00
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Fitch Ratings Lanka said yesterday it has affirmed HSBC Sri Lanka Branch’s (HSBCSL) National Long-Term Rating at ‘AAA(lka)’.The Outlook is Stable.
HSBCSL’s rating is at the highest end of the National Rating scale and reflects the credit profile and financial strength of The Hongkong & Shanghai Banking Corporation Ltd. (HKSB; Long-Term Issuer Default Rating (IDR): ‘AA’-/Stable).
The rating is tied to HKSB’s IDR because of HSBCSL’s legal status as a branch of HKSB and hence is an extension of the same legal entity as HKSB. HKSB’s rating is higher than Sri Lanka’s Long-Term Local and Foreign Currency IDRs of ‘BB-’/Stable, and as a result, HSBCSL’s rating on the National Rating scale is mapped to ‘AAA(lka)’. Fitch believes that support from HKSB would be forthcoming if required, subject to any regulatory constraints on remitting money into Sri Lanka.
HSBCSL posted a 6.1% increase in loans in the nine months to end-September 2013 (9M13) due to reduced demand for rupee-denominated loans. HSBCSL’s portfolio (64% of total loans at end-2013) mainly focuses on large customers within the corporate segment. Its retail exposures include substantial credit card loans (43% of the retail loan book) due to its leading position in this product.
HSBCSL’s capitalisation remained strong even after the transfer of profit to HKSB (Fitch core capital to risk weighted assets of 23.8% at end-9M13). HSBC Group provided 31% of total funding to HSBCSL.
Established in Sri Lanka in 1892, HSBCSL is the largest foreign bank branch in Sri Lanka, and the sixth-largest licensed commercial bank, accounting for 6.1% of banking sector assets at end-9M13.
A downgrade of HSBCSL rating could result from HKSB’s rating falling below Sri Lanka’s IDR. Any changes to Fitch’s expectation of support from HKSB could also have a negative effect on the rating.
