Sri Lankan banks’ ratings under pressure as operating conditions weaken: Fitch

Jul 20, 2020 (LBO) – Fitch Ratings revised down the operating environment (OE) score for Sri Lankan banks to ‘b-‘ from ‘b’ in May 2020 after the sovereign rating was downgraded to ‘B-‘ in April 2020.

The Outlook on Sri Lanka’s Long-Term Issuer Default Rating (IDR) is Negative, as is the outlook on the OE score.

The change in the OE score followed a revision in the outlook on the score to negative from stable in January 2020, which came on the heels of a revision in the Outlook on Sri Lanka’s ‘B’ sovereign rating to Negative from Stable in December 2019.

“The OE for Sri Lankan banks has a high influence on the banks’ ratings, as it is likely to constrain their intrinsic credit profiles through its effect on financial and non-financial key rating factors, despite regulatory reliefs,” Fitch Ratings said in a new research note.

Fitch believes that there is a strong link between the sovereign credit profile and the operating conditions for banks in Sri Lanka.

“This is because our forecast 1.3% GDP contraction in 2020 will constrain the banks’ growth and recovery prospects and the increased risk of sovereign debt distress will limit banks’ access to and cost of foreign funding.”

Full report

Fitch-Operating-Environment-for-Sri-Lankan-Banks-2020-07-20