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Fitch Affirms Seylan Bank at 'A-(lka)'; Outlook Stable
October 1, 2014 / 9:04 AM / 3 years ago

Fitch Affirms Seylan Bank at 'A-(lka)'; Outlook Stable

(The following statement was released by the rating agency) COLOMBO/TAIPEI, October 01 (Fitch) Fitch Ratings Lanka has affirmed Sri Lanka-based Seylan Bank PLC's (Seylan) National Long-Term Rating at 'A-(lka)'. The Outlook is Stable. Fitch has also affirmed Seylan's senior unsecured debentures at 'A-(lka)' and subordinated debt at 'BBB+(lka). KEY RATING DRIVERS - NATIONAL RATING AND DEBT Seylan's rating is driven by Fitch's view that the Sri Lankan state (BB-/Stable) would provide extraordinary support to the bank, in case of need, because of its systemic importance. The Sri Lankan regulator has identified Seylan as one of six systemically important domestic banks. However, the state's ability to support the bank, if needed, is limited as reflected in the sovereign's 'BB-' rating. Seylan's recovery efforts have resulted in a significant improvement in its reported gross non-performing loan (NPL) ratio to 10.9% at end-1H14 from the peak of 29.7% at end-2009. However, the amount of Seylan's NPLs continues to be high compared with higher-rated peers. This is mostly due to large legacy NPLs on which recoveries have been challenging. Seylan's ratio of unprovided NPLs to equity remains weaker than higher-rated peers. Seylan's loan book fell 2.6% in 1H14, reflecting the lower credit demand from the private sector that has hurt loan growth across the banking sector. Profitability in 1H14 was supported by one-off bond gains, which offset the contraction in net interest margin and the higher loan impairment charges that were seen across the sector. Seylan's cost efficiency has improved, although costs still remain high. The bank ranked as Sri Lanka's sixth-largest domestic commercial bank in terms of assets at end -2013. Seylan experienced a crisis in 2009 that prompted regulatory intervention. Seylan's senior unsecured debentures are rated at the same level as its National Long-Term Rating as they constitute unsecured and unsubordinated obligations of the company. Its subordinated debentures are rated one notch below its National Long-Term Rating to reflect their subordination to senior unsecured creditors. RATING SENSITIVITIES - NATIONAL RATING AND DEBT Fitch does not expect Seylan's National Ratings to be downgraded as support to Seylan is expected to continue given the bank's systemic importance. An upgrade of Seylan's rating would be contingent upon its standalone rating moving above the support-driven rating through a significant and sustained improvement in asset quality and provisioning while maintaining other credit metrics in line with higher-rated peers. The debt ratings will move in tandem with Seylan's National Long-Term Rating. Contacts: Primary Analyst Rukshana Thalgodapitiya Vice President +941 1254 1900 Fitch Ratings Lanka Ltd 15-04, East Tower, World Trade Center Colombo 1, Sri Lanka Secondary Analyst Kanishka de Silva Analyst +941 1254 1900 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7600 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. Additional information is available at www.fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, "National Scale Ratings Criteria", dated 30 October 2013, "Assessing and Rating Bank Subordinated and Hybrid Securities" dated 31 January 2014, and "Evaluating Corporate Governance", dated 12 December 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Evaluating Corporate Governance here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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