Fitch rates Bank of Ceylon’s Basel III subordinated debt final ‘A’

Monday, 5 May 2025 04:26 - - {{hitsCtrl.values.hits}}

Fitch Ratings has assigned Bank of Ceylon’s (BOC, CCC+/CCC+/AA-(lka)/Stable) proposed Sri Lankan rupee-denominated Basel III-compliant subordinated debentures of up to Rs. 15 billion a final National Long-Term Rating of ‘A(lka)’.

The final rating is the same as the expected rating assigned on 2 April, as it follows the receipt of documents conforming to information already received.

Fitch issued following key drivers for its rating decision:

The proposed debentures will mature in five years and be listed on the Colombo Stock Exchange. The bank plans to use the proceeds to strengthen its Tier 2 capital base and liquidity position, bridge maturity mismatches, and support the expansion of its asset base.

The proposed debentures will qualify as Basel III-compliant regulatory Tier 2 capital. The debentures include a non-viability clause whereby the notes will be converted to an Additional Tier 1 (AT1) instrument on a permanent basis, subject to the occurrence of a trigger event, as determined by the Governing Board of the Central Bank of Sri Lanka.

Fitch rates the proposed debentures two notches below the bank’s National Long-Term Rating anchor. This reflects Fitch’s baseline notching for loss severity for this type of debt, and our expectations of poor recoveries upon non-performance. There is no additional notching for non-performance risks, as the notes do not incorporate going-concern loss-absorption features and will only convert to AT1 at the point of non-viability.

BOC’s National Long-Term Rating is used as the anchor rating for this instrument because the rating reflects the bank’s standalone financial strength and best indicates the risk of the bank becoming non-viable.