Wednesday July 18, 2018

Sri Lanka HNB Rights to boost capital, loan growth: Moody’s

Jul 11, 2017 12:03 PM GMT+0530 | 0 Comment(s)

ECONOMYNEXT – The 15 billion rupee rights issue by Sri Lanka’s Hatton National Bank (HNB), rated B1 negative, will boost its capital and loan growth at a time the island’s banks have faced shrinking capital buffers, Moody’s rating agency said.

“HNB’s capital raise will give it the highest Tier 1 ratio among large Sri Lankan banks,” Moody’s Investors Service said in a statement.

The rights issue, equivalent to $190 million, will boost the bank’s capital buffer well above the Basel III requirements that took effect in Sri Lanka on 1 July, a credit positive, Moody’s said.

“The shareholders’ approval of the rights issue is a positive step following HNB’s previously stalled plan to raise capital. HNB had planned to raise capital in 2016 from the Asian Development Bank (Aaa stable), but some shareholders blocked the transaction,” it said.

The rating agency estimates that the rights issuance will add 230 basis points to HNB’s Tier 1 ratio, bringing it to 12.9 percent, well above Sri Lankan banks’ new 10 percent regulatory minimum, with which banks must comply by January 2019.

“Sri Lankan banks have been dealing with shrinking capital buffers as loan growth exceeds the growth of banks’ retained earnings,” Moody’s said.

“System loan growth was 17.5 percent in 2016, while retained earnings – particularly at state-owned banks – was negatively pressured by high cash dividend payouts that averaged 75 percent for that year.”

Moody’s said HNB’s higher capital buffer will support its loan growth over the next 12-18 months.

“We expect HNB’s loan volume to grow by 20 percent annually during 2017-19, in line with its year-on-year growth rate at the end of March.

“In this scenario, where we also assume 20 percent cash dividends every year, HNB’s Tier 1 ratio would be around 13 percent at the end of 2019. In a different scenario, where annual loan growth is 25 percent, we estimate the capital buffer would be around 12 percent at the end of 2019.”
(COLOMBO, July 11, 2017)


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