Fitch Rates National Development Bank’s Basel III Sub Debt A-(lka)(EXP)

Fitch Ratings has assigned the proposed Basel III-compliant subordinated unsecured debentures of Sri Lanka’s National Development Bank PLC (NDB, A+(lka)/Stable) an expected National Long-Term Rating of ‘A-(lka)(EXP)’.

The proposed debentures will total up to LKR8 billion with maturities of five and seven years, and will be listed on the Colombo Stock Exchange. NDB plans to use the proceeds to strengthen its Tier 2 capital base and support loan-book expansion.

The proposed debentures include a non-viability clause whereby they will convert to ordinary voting shares if so determined by the Monetary Board of Sri Lanka.

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

KEY RATING DRIVERS

NDB’s proposed and outstanding Sri Lankan rupee-denominated subordinated debt is rated two notches below the National Long-Term Rating anchor. This reflects Fitch’s baseline notching for loss severity for this type of debt, and our expectations of poor recoveries. There is no additional notching for non-performance risks, as the debentures do not incorporate going-concern loss-absorption features.

NDB’s National Long-Term Rating is used as the anchor rating for this instrument because the rating reflects the bank’s standalone financial strength, and best indicates the risk of the bank becoming non-viable. NDB’s National Long-Term Rating was affirmed on 3 August 2021, and is driven by its intrinsic credit profile. For its Key Rating Drivers, please see “Fitch Affirms National Development Bank at ‘A+(lka)’; Outlook Stable”.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

NDB’s subordinated debt would be upgraded if the bank’s National Long-Term Rating is upgraded.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

NDB’s subordinated debt would be downgraded if the bank’s National Long-Term Rating is downgraded.