May 25, Colombo: Fitch Ratings Lanka has upgraded the National Long-Term Ratings of Union Bank of Colombo PLC (UB) to 'BBB-(lka)' from 'BB+(lka)' and of Cargills Bank Ltd (CBL) to 'A-(lka)' from 'BB(lka)'. The Outlooks are Stable.
The agency has also affirmed the National Long-Term Ratings of Amana Bank PLC, Nations Trust Bank PLC (NTB), Pan Asia Banking Corporation PLC (PABC), SANASA Development Bank PLC (SDB) and Housing Development Finance Corporation Bank of Sri Lanka (HDFC).
The rating actions follow Fitch's periodic review of Sri Lanka's small and mid-sized bank peer group. The agency maintains the negative outlook on Sri Lanka's banking sector, as we expect challenging operating conditions to persist in 2019.
Fitch expects the banks' ratings to be weighed down by their high-risk appetites as they pursue above-sector loan expansion in the medium term, which will pressure their already-thin capital buffers. The ratings also take into account these banks' small franchises.
Fitch expects credit risks to linger in 2019 due to the banks' exposure to the more susceptible customer segments at a time when the country faces domestic and external challenges. The banks' profitability metrics are likely to remain weak owing to high impairment losses and effective taxes.
PABC, HDFC, Amana and CBL need to raise equity to meet the enhanced capital requirements by end-2020; capital raising could be more difficult for these banks than for larger peers.
Full statement of Fitch Ratings