(Repeat for additional subuscribers)
March 25 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Bank of Ceylon's (BOC) Long-Term Foreign Currency and
Local Currency Issuer Default Ratings (IDRs) at 'BB-' with a Stable Outlook. The agency has also
affirmed BOC's Viability Rating (VR) at 'b+'. BOC's National Long-Term rating has also been
affirmed at 'AA+(lka)' with a Stable Outlook. A full list of rating actions is
at the end of this rating action commentary.
KEY RATING DRIVERS - IDRS, NATIONAL RATINGS AND DEBT
BOC's IDRs and National Long-Term rating reflect the government of Sri Lanka's
(BB-/Stable) high propensity but moderate ability to provide support to the bank
under extraordinary situations. The state's high propensity stems from BOC's
high systemic importance as the largest bank in Sri Lanka, its quasi-sovereign
status, its role as a key lender to the government and full government
ownership. The state's moderate ability to provide support is reflected in the
The Stable Outlook on BOC's IDRs and National Long-Term rating reflects the
Stable Outlook on Sri Lanka's sovereign rating.
The US dollar senior unsecured notes are rated at the same level as BOC's
Long-Term Foreign Currency IDR as they constitute direct, unsubordinated and
unsecured obligations of the bank, and rank equally with all its other unsecured
and unsubordinated obligations.
BOC's Sri Lanka rupee-denominated subordinated debt is rated one notch below its
National Long-Term rating to reflect its gone-concern loss-absorption quality in
the event of liquidation.
RATING SENSITIVITIES - IDRS, NATIONAL RATINGS AND DEBT
Any change in Sri Lanka's sovereign rating or the perception of state support to
BOC could result in a change in BOC's IDRs, National Long-Term rating, and issue
ratings. Visible demonstration of preferential support for BOC in the form of an
explicit guarantee will be instrumental to an upgrade of its National Long-Term
KEY RATING DRIVERS - VIABILITY RATING
The bank's VR remains under pressure due to its thin capitalisation and
declining asset quality. The VR also takes into consideration BOC's strong
domestic funding franchise that is underpinned by its state linkages.
Increased delinquencies in BOC's gold backed loans portfolio, which expanded
rapidly since 2010, have been the main contributor to the increase in
non-performing loans (NPL), a phenomenon that has been seen across the sector.
BOC has concentration risk arising from high exposure to the state sector (state
and state-owned entities). Of the bank's total state sector exposure at
end-2013, about 40% is guaranteed by the state.
Reported Tier 1 regulatory capital adequacy ratio (CAR) stood at 8.0% at
end-2013 and benefited from exposures that are zero-risk weighted according to
local regulatory requirements. If risk weights of 100% and 50% were applied on
foreign currency denominated state sector and gold backed exposures
respectively, BOC's Tier 1 CAR would be much lower. The pace of loan growth
slowed to 6% in 2013 from 27% a year earlier. This supported a reduction in the
loans-to-deposits ratio to 91% at end-2013 from 105% at end-2012.
RATING SENSITIVITIES - VR
A continued decline in capitalisation through a surge in lending or a further
decline in asset quality alongside high dividend payouts could place downward
pressure on the bank's VR. A timely capital infusion would support the VR.
BOC is the largest bank in Sri Lanka in terms of assets. BOC has 13 subsidiaries
and five associates and has branches in Chennai, India, Male, Maldives and the
Seychelles: and a fully owned subsidiary, Bank of Ceylon (UK) Ltd, in the UK.
The full list of rating actions follows:
Long-Term Foreign Currency IDR affirmed at 'BB-'; Outlook Stable
Long-Term Local Currency IDR affirmed at 'BB-'; Outlook Stable
Short-Term Foreign Currency IDR assigned at 'B'
Viability Rating affirmed at 'b+'
Support Rating affirmed at '3'
Support Rating Floor affirmed at 'BB-'
US dollar senior unsecured notes affirmed at 'BB-'
National Long-Term rating affirmed at 'AA+(lka)'; Outlook Stable
Sri Lanka rupee-denominated subordinated debentures affirmed at 'AA(lka)'