Sri Lanka’s PABC’s Outstanding Debentures gets ‘BB+(lka)’ rating: Fitch

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(PRESS RELEASE) – Fitch Ratings-Colombo-04 September 2017: Fitch Ratings has assigned Pan Asia Banking Corporation PLC’s (PABC, BBB-(lka)/Stable) outstanding Sri Lanka rupee-denominated Basel IIcompliant
subordinated debentures a National Long-Term Rating at ‘BB+(lka)’.

The debentures mature in 2019 and amount to LKR3 billion.

A full list of PABC’s ratings is given below.

KEY RATING DRIVERS

The outstanding subordinated debentures are rated one notch below PABC’s National Long-Term
Rating to reflect their subordination to senior unsecured creditors.

PABC’s National Long-Term Rating of ‘BBB-(lka)’ reflects declining capitalisation following its
rapid growth in the past. The bank raised LKR2.1 billion in March 2017 via a rights issue to
increase its minimum regulatory capital in order to meet the LKR7.5 billion target which was
due on 1 January 2017.

PABC is required to increase this further to LKR10 billion by 1 January 2018. Fitch believes that
the bank’s earnings retention alone is not likely to be sufficient to achieve the capital
standards, despite improved profitability.

RATING SENSITIVITIES

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

An upgrade of PABC’s rating is contingent upon the bank achieving a sustained and significant
improvement in capitalisation, alongside a moderation in risk appetite. PABC’s rating would be
downgraded if loss-absorption buffers deteriorate further, either through aggressive loan-book
growth or a greater share of unprovided NPLs.

A full list of PABC’s ratings are as follows:

National Long-Term Rating: ‘BBB-(lka)’; Outlook Stable
Sri Lanka rupee-denominated senior unsecured debentures: ‘BBB-(lka)’
The following outstanding Basel II-compliant subordinated debentures are rated ‘BB+(lka)’:
– LKR1.91 billion 9.75% listed subordinated debentures due 2019
– LKR1.09 billion 9.523% listed subordinated debentures due 2019