Fitch rates Commercial Bank subordinated debentures final AA-(lka)

Fitch Ratings Lanka has assigned Commercial Bank of Ceylon PLC’s (CB; AA(lka)/Stable) proposed Basel II-compliant subordinated debentures of up to LKR7bn a final National Long-Term Rating of ‘AA-(lka)’.

The final rating is the same as the expected rating assigned on 3 August 2016, and follows the receipt of documents conforming to information already received.

The proposed issuance, which will have tenors of five and 10 years and carry fixed coupons, will be listed on the Colombo Stock Exchange. CB expects to use the proceeds to fund loan expansion, reduce asset and liability maturity mismatches, and increase its Tier II capital base.

KEY RATING DRIVERS

The issue is rated one notch below CB’s National Long-Term Rating, to reflect the subordination to senior unsecured creditors.

The National Long-Term Rating of CB reflects its measured risk appetite relative to peers, strong funding profile, solid domestic franchise and sound performance. The ratings reflect Fitch’s expectation that its non-domestic operations will remain small.

RATING SENSITIVITIES

The rating on the proposed debentures will move in tandem with CB’s National Long-Term Rating.

Enhanced resilience against a volatile operating environment could be positive for CB’s National Long-Term Rating.

The bank’s ratings could be downgraded if its ability to withstand cyclical asset-quality deterioration declines due to lower earnings and capitalisation. In addition, any marked weakening in its deposit franchise and deviation from its measured risk appetite, both viewed by Fitch as key factors that differentiate CB from its lower-rated peers, would be negative.