Fitch assigns NTB’s Basel III sub-debt issue final A-(lka)

Fitch Ratings has assigned Nations Trust Bank PLC’s (NTB, A(lka)/Stable) Sri Lanka rupee-denominated proposed Basel III-compliant subordinated unsecured debentures a final National Long-Term Rating of ‘A-(lka)’.

The final rating is the same as the expected rating assigned on 16 October 2017 and follows the receipt of documents conforming to information already received.

The debentures, totalling LKR3.5 billion, will mature in five years and carry fixed coupons. The debentures qualify as regulatory Tier II capital for the bank and include a non-viability clause. The bank plans to use the proceeds to support its loan book expansion and to strengthen its Tier II capital base. The debentures are to be listed on the Colombo Stock Exchange.

KEY RATING DRIVERS

Fitch rates the proposed Tier II instrument one notch below the bank’s National Long-Term Rating of ‘A(lka)’ to reflect the notes’ subordinated status and higher loss-severity risks relative to senior unsecured instruments. The notes would convert to equity upon the occurrence of a trigger event as determined by the Monetary Board of Sri Lanka.

NTB’s National Long-Term Rating is used as the anchor rating because the rating reflects the bank’s standalone financial strength. Fitch believes that the bank’s standalone credit profile best indicates the risk of becoming non-viable.

Fitch has not differentiated the notching on the proposed notes from the notching on NTB’s legacy Tier II notes as it is assumed that the authorities would step in late, moving the point of non-viability close to liquidation.

Fitch has not applied additional notching to the notes for non-performance risk according to Fitch’s criteria, as the notes have no going-concern loss-absorption features.

RATING SENSITIVITIES

The rating of the notes would move in tandem with NTB’s National Long-Term Rating.