Fitch withdraws AA-(EXP) rating on Commercial Bank’s Basel III subordinated debt

Dec 03, 2019 (LBO) – Fitch Ratings is withdrawing the expected National Long-Term Rating of ‘AA-(EXP)(lka)’ assigned to Commercial Bank of Ceylon PLC’s (CB; AA(lka)/Stable) proposed Basel III-compliant subordinated unsecured debentures.

The expected rating was assigned on 2 April 2019.

Fitch is withdrawing CB’s expected rating as its forthcoming debt issuance is no longer expected to convert to final ratings.

KEY RATING DRIVERS

Fitch rated the proposed Tier 2 instruments one notch below CB’s National Long-Term Rating to reflect the notes’ subordinated status and higher loss-severity risks relative to senior unsecured instruments. The notes would have converted to equity upon the occurrence of a trigger event, as determined by the Monetary Board of Sri Lanka.

CB’s National Long-Term Rating was used as the anchor rating for the proposed instrument as it reflected the bank’s standalone financial strength and best indicated the risk of the bank becoming non-viable.

Fitch did not apply additional notching to the proposed notes for non-performance risk, as the proposed notes did not have going-concern loss-absorption features, in line with the agency’s criteria.

CB’s National Long-Term Rating was last affirmed on 10 September 2019 and reflects its established domestic franchise as the third-largest bank in Sri Lanka, broadly stable earnings performance, and established domestic deposit franchise, which underpins its funding and liquidity profile.

RATING SENSITIVITIES

Rating sensitivities are not applicable for the proposed subordinated debt as the rating has been withdrawn.

Enhanced loss-absorption buffers could be positive for CB’s National Long-Term Rating. A deterioration in capital buffers, including through an increase in risk appetite and/or a sharp deterioration in asset quality, could pressure CB’s rating.