Fitch Ratings has placed 13 State and private banks in Sri Lanka on Rating Watch Negative (RWN), due to the foreign currency stress experienced by the banking system.
The banks are People’s Bank (Sri Lanka), Commercial Bank of Ceylon PLC, Hatton National Bank PLC, Sampath Bank PLC, National Development Bank PLC, DFCC Bank PLC, Seylan Bank PLC, Nations Trust Bank PLC, Pan Asia Banking Corporation PLC, Union Bank of Colombo PLC, Amana Bank PLC, SANASA Development Bank PLC and Housing Development Finance Corporation Bank of Sri Lanka (HDFC).
In a statement, the New York-based credit rating agency said the RWN reflected heightened near-term downside risk that stemmed from “constrained access to foreign-currency funding and the resulting indications of stress experienced by the banks in the system”.
It added that this risk was exacerbated by the sovereign’s credit profile (Long-Term Foreign-Currency Issuer Default Rating (IDR): CC, Long-Term Local-Currency IDR: CCC) and the ensuing risks to the stability of the financial system.
Fitch Ratings said the mounting currency stress increased the likelihood of restrictions being imposed on banks’ ability to service their obligations in foreign currency.
The credit rating agency also stated that it aimed to resolve the RWN in the next six months, depending on the evolution of the banks’ funding and liquidity positions, which could result in multiple notch downgrades.
“We believe the domestic banks’ foreign currency funding and liquidity positions are prone to sudden changes amid already weak creditor sentiment,” Fitch Ratings said, adding that the loan and deposit dollarisation for the sector was at 18% of total loans and 17% of total deposits as at end 2021.
Fitch places 13 banks under negative rating watch
17 Apr 2022
Fitch places 13 banks under negative rating watch
17 Apr 2022