ECONOMYNEXT – Fitch Ratings has awarded Sri Lanka-based HNB Securities Limited its inaugural National Long-Term Rating of ‘A(lka)’, accompanied by a Stable Outlook.
The rating reflects the Fitch Ratings’ expectation of extraordinary support from parent, Hatton National Bank.
“This assessment is underpinned by HNBS’s synergistic role as the primary dealing arm of HNB, including for its affiliates and wealth management clients,” Fitch said.
The rating also factors in HNB Securities’ positive contribution to the parent’s profitability, and HNB’s oversight of it through board representation and periodic reporting.
Fitch Assigns HNB Securities First-Time ‘A(lka)’ Rating; Outlook Stable
Fitch Ratings has assigned Sri Lanka-based HNB Securities Limited (HNBS) a first-time National Long-Term Rating of ‘A(lka)’ with a Stable Outlook.
HNBS is ultimately 100% owned by Hatton National Bank PLC (HNB, AA-(lka)/Stable) – the fourth-largest commercial bank by assets in Sri Lanka – through HNB Investment Bank (Pvt) Ltd (HNBIB). HNBS, as one of the 10 active primary dealers in the country, is authorised to participate directly in government securities auctions. It is also one of the five primary dealers operating as standalone legal entities, while the remaining five are primary dealing divisions within banks.
For more information on HNB, see our rating action commentary “Fitch Upgrades 10 Sri Lankan Banks’ National Ratings and Affirms Five after Scale Recalibration“, dated 21 January 2025.
Key Rating Drivers
Support-Driven Rating: HNBS’s National Long-Term Rating reflects our expectation of extraordinary support from HNB, if required. This assessment is underpinned by HNBS’s synergistic role as the primary dealing arm of HNB, including for its affiliates and wealth management clients. The rating also factors in HNBS’s shared branding with HNB, its positive contribution to the parent’s profitability, and HNB’s oversight of HNBS through board representation and periodic reporting.
Moderate Reputational Ties: HNBIB, formerly Acuity Partners (Pvt) Ltd – a joint venture between HNB and DFCC Bank PLC (A(lka)) – became a wholly owned subsidiary of HNB following HNB’s acquisition of DFCC’s shareholding in HNBIB in January 2025. This transaction was followed by the alignment of the corporate and brand names of HNBIB and its subsidiaries, including HNBS, with HNB. That said, we believe the reputational risk to HNB in the event of an HNBS default is more containable than that for bank-supported finance and leasing companies rated by Fitch in Sri Lanka due to HNBS’s lack of public deposit operations.
Strategic Value: We believe HNBS’s primary dealing operations have a strong strategic alignment with HNB’s financial services franchise. HNB, together with other subsidiaries within the group, participates in government securities auctions exclusively through HNBS. HNB also plans to further integrate HNBS into the bank’s broader wealth management business through cross-selling opportunities.
Accretive to Group Profitability: HNBS is the largest profit contributor to HNB among the bank’s subsidiaries and affiliates, accounting for 3.8% of HNB’s consolidated pretax profit over the last five years (2024: 4.0%) on a pro forma fully owned basis. HNBS’s average pretax return on average assets (ROAA) of 5.6% over 2020-2024 was significantly higher than the parent bank’s standalone pretax ROAA of 2.4%.
Group Oversight: HNBS retains significant management independence in its day-to-day operations, but it is subject to HNB’s oversight through board representation and periodic reporting. HNB’s CEO and head of treasury and markets are currently two of HNBS’s three board members. HNBS is also required to report to HNB’s risk and audit board committees on a quarterly basis.
Parent’s Ability to Support: We believe HNB possesses strong ability to provide extraordinary support to HNBS if needed, given the subsidiary’s manageable size relative to the bank. HNBS accounted for 2.8% of HNB’s total standalone assets and 3.3% of its equity at end-2024. The regulator has barred commercial banks from providing unsecured funding facilities to their subsidiaries since mid-June 2025. However, HNB can still extend funding backed by eligible collateral or inject equity capital, which provides adequate flexibility for financial support, if needed.
Moderate Standalone Profile: HNBS’s standalone credit profile does not drive its rating and is assessed to be weaker than its support-driven rating. This reflects HNBS’s more volatile, market-focused business model and its concentrated repo funding pool. HNBS’s large unhedged trading positions in government securities also heighten interest rate risk. We believe these factors are balanced by its relatively liquid assets primarily composed of government securities.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
HNBS’s rating is sensitive to changes in HNB’s credit profile and our assessment of HNB’s ability and willingness to provide timely extraordinary support. Developments that could lead to negative rating action include:
– Weakening in HNB’s ability to provide support, potentially due to a significant increase in HNBS’s size or risk exposure relative to the parent’s balance sheet, although the subsidiary is relatively small currently
– A significant decline in HNB’s shareholding with a material reduction in HNBS’s strategic alignment with HNB that indicates HNB’s declining propensity to support HNBS on a timely basis
– Sustained poor performance and weak profitability for HNBS and/or a material reduction in HNBS’s strategic value within the group that reduces HNB’s propensity to provide support
– A downgrade of HNB’s rating would result in a downgrade of HNBS’s rating by the same magnitude, provided other shareholder support factors remain unchanged
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of HNB’s rating could lead to an upgrade on HNBS’s rating by the same magnitude, provided other shareholder support factors remain intact. Significantly increased strategic integration with HNB, such as materially higher cross-selling or a greater contribution to the parent’s absolute consolidated profit, could also strengthen the parent’s support propensity.
Any positive action would also take into account relativities with other support-driven entities on the Sri Lankan national scale, including HNBS’s deposit-taking sister company, HNB Finance PLC (A(lka)/Stable).