Fitch affirms Citibank N.A. – Colombo branch at AAA(lka); outlook stable

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Fitch Ratings Lanka has affirmed Citibank N.A. – Colombo Branch’s (CitiSL) National Long-Term Rating at ‘AAA(lka)’. The Outlook is Stable.

KEY RATING DRIVERS

CitiSL’s rating reflects the credit profile and financial strength of Citibank, N.A. (Long-Term Issuer Default Rating (IDR) at A+/Stable and Viability Rating at a).

The rating is linked with Citibank, N.A.’s IDR to reflect CitiSL’s legal status as a branch of Citibank, N.A., which makes it part of the same legal entity. It also reflects the relatively small size of the branch (less than 1% of the total assets of Citibank, N.A.) and therefore, any support would not be material to the head office.

Citibank, N.A. ‘s rating is higher than Sri Lanka’s Long-Term Local- and Foreign-Currency IDRs of ‘B+’/Stable and as a result, CitiSL’s rating is at the highest end of the National Rating scale for Sri Lanka. Fitch believes that support from Citibank, N.A. would be forthcoming if required, subject to any regulatory constraints on remitting money into Sri Lanka.

CitiSL is operationally integrated with Citigroup through the use of common systems and regular reporting. Its strategic objectives are also aligned with those of the group.

CitiSL’s stringent credit evaluation framework has helped the branch to maintain sound asset quality with zero non-performing loans since 2009. However, it has also led to a highly concentrated loan book, with the top 20 largest loans accounting for 97% of total lending at end-1H17.

Fitch expects the branch to maintain sufficient capitalisation to support its business plans despite regular profit repatriations. CitiSL’s Fitch Core Capital ratio remained high at 34.6% at end-June 2017, although it declined from the 44.5% at end-2016 due to aggressive loan growth in 1H17.

CitiSL’s highly concentrated deposit base declined to 76.3% of the branch’s funding mix at end-1H17 from 85.6% at end-2015, due to an increase in inter-branch borrowings. However, Fitch believes that CitiSL’s liquidity position is stable as the branch has access to intergroup funding, if needed.

RATING SENSITIVITIES

A downgrade of CitiSL’s rating could result from Citibank, N.A.’s rating falling below Sri Lanka’s IDR, although Fitch sees that as highly unlikely in the near to medium term. Significant changes to Fitch’s expectation of support from CitiBank N.A. could also have a negative impact on the rating.