Fitch Rates Sampath Bank’s Basel III Sub Debt ‘A(lka)(EXP)’

Jan 02, 2019 (LBO) – Fitch Ratings has assigned Sampath Bank PLC’s (A+(lka)/Stable) proposed Basel III compliant subordinated debentures an expected National Long-Term Rating of ‘A(lka)(EXP)’.

The notes, which will total LKR7 billion and mature in five years, include a non-viability clause and will qualify as regulatory Tier II capital for the bank. The bank plans to use the proceeds to strengthen its Tier II capital base and support its loan-book expansion. The debentures are to be listed on the Colombo Stock Exchange.

The final rating is subject to the receipt of final documentation conforming to information already received.

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.

Sampath’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 applied additional notching to the notes for non-performance risk, as they have no going-concern loss-absorption features, in line with Fitch’s criteria. Sampath’s National Long-Term Rating was affirmed on 28 September 2018 and incorporates its evolving franchise, high-risk appetite and improving, but lower-than-peer, capitalisation.

RATING SENSITIVITIES

The rating of the notes would move in tandem with Sampath’s National Long-Term Rating. Failure to maintain capital buffers commensurate with the bank’s risk profile could pressure Sampath’s rating. Conversely, Sampath’s ratings could be upgraded if the bank significantly strengthens its capitalisation and at the same time restrains its growth trajectory.