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Sunday December 10th, 2023

Hatton National Bank ‘AA(lka)’ Sri Lanka rating confirmed by Fitch

ECONOMYNEXT – Fitch Ratings has confirmed the ‘AA(lka)’ rating of Sri Lanka’s Hatton National Bank saying it had adequate capital but asset quality was under pressure.

“We expect HNB’s capital ratios to remain adequate in the short- to medium-term on slower
balance-sheet growth, but its capital buffers remain vulnerable as asset quality deteriorates,” rating agency said.

“HNB’s reported non-performing loan (NPL) ratio deteriorated sharply to 4.7 percent in 1H19, from 2.8 percent in 2018, due primarily to an increase in SME NPLs.”

The full statement is reproduced below:

Fitch Affirms Hatton National Bank at ‘AA-(lka)’; Outlook

Fitch Ratings has affirmed Sri Lanka-based Hatton National Bank PLC’s (HNB) National Long-Term
Rating at ‘AA-(lka)’. The Outlook is Stable. At the same time, Fitch has affirmed the bank’s Sri Lanka
rupee-denominated senior unsecured debt at ‘AA-(lka)’. The ratings on HNB’s Basel II and Basel III
compliant Sri Lanka rupee-denominated subordinated debt are affirmed at ‘A+(lka)’.

Key Rating Drivers

HNB’s rating is driven by its intrinsic financial strength, reflecting its strong domestic franchise as
Sri Lanka’s fourth-largest commercial bank, commanding 9%-10% of system assets, loans and
deposits at end-June 2019. The rating also takes into account the bank’s adequate capitalisation
and generally better-than-average financial profile. This is counterbalanced by a high risk appetite
and a deteriorating loan quality.

We expect HNB’s capital ratios to remain adequate in the short- to medium-term on slower
balance-sheet growth, but its capital buffers remain vulnerable as asset quality deteriorates. The
last capital raising took place in July 2017 via a rights issue that brought in LKR14.5 billion (USD95
million) in cash.

HNB’s high-risk appetite stems from its rapid loan expansion and dominance of higher-risk retail
and SME segments, which stood at 56% of total loans at end-June 2019 and could increase in the
medium term.

HNB’s reported non-performing loan (NPL) ratio deteriorated sharply to 4.7% in 1H19, from 2.8%
in 2018, due primarily to an increase in SME NPLs. We expect asset-quality pressure to persist in
the short term, but a significant deterioration from current levels is less probable.


HNB’s Sri Lanka rupee-denominated senior unsecured debentures are rated at the same level as
its National Long-Term Rating as they rank equally with other senior unsecured obligations.
HNB’s Basel II- and proposed Basel III-compliant Sri Lanka rupee-denominated subordinated debt
is rated one notch below its National Long-Term Rating to reflect the subordination to senior
unsecured creditors. The proposed Basel III-compliant debentures include a non-viability trigger
upon the occurrence of a trigger event, as determined by the Monetary Board of Sri Lanka.


An upgrade of HNB’s National Long-Term Rating is contingent on the bank sustaining an
improvement in its financial profile, particularly its funding and liquidity and asset quality, as well
as demonstration of a sustainable and moderate risk appetite. A rating downgrade could be
triggered by a significant increase in risk-taking and operating environment-related risks, denting
the bank’s asset quality and capital buffers.


The senior and subordinated debt ratings will move in tandem with the bank’s National Long-Term Rating.

Hatton National Bank PLC; National Long Term Rating; Affirmed; AA-(lka);
—-senior unsecured; National Long Term Rating; Affirmed; AA-(lka)
—-subordinated; National Long Term Rating; Affirmed; A+(lka)

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ADB USD200mn loan for Sri Lanka economic stabilization efforts

ECONOMYNEXT – The Asian Development Bank (ADB) has approved a US 200 million dollar concessional loan to Sri Lanka to help stabilize the country’s finance sector.

The Financial Sector Stability and Reforms Program comprises two subprograms of IS 200 million dollars each, according to a statement by the ADB.

“The program’s overarching development objective is fully aligned with the country’s strategy of maintaining finance sector stability, while ensuring that banks are well-positioned for eventual recovery,” ADB Country Director for Sri Lanka Takafumi Kadono was quoted as saying in the statement.

“The expected development outcome is a stable financial system providing access to affordable finance for businesses in various sectors of the economy.”

The ADB statement continues:

“Subprogram 1 targets short-term stabilization and crisis management measures that were implemented in 2023, while subprogram 2 is planned to be implemented in 2024 and focuses on structural reforms and long-term actions to restore growth in the banking sector.

The program will help strengthen the stability and governance of the country’s banking sector; improve the banking sector’s asset quality; and deepen sustainable and inclusive finance, particularly for women-led micro, small, and medium-sized enterprises.

According to the International Monetary Fund’s (IMF) latest review, Sri Lanka’s economy is showing tentative signs of stabilization, although a full economic recovery is not yet assured.

The program is a follow-on assistance from ADB’s crisis response under the special policy-based loan that was approved for Sri Lanka in May 2023.

It is aligned with the fourth pillar of the IMF’s Extended Fund Facility provided to Sri Lanka to help the country regain financial stability.

It is also in line with the government’s reform agenda, including strengthening the operational independence of the Central Bank of Sri Lanka (CBSL) and its designation as the country’s macroprudential authority.

In designing this subprogram 1 loan, ADB has maintained close coordination and collaboration with the IMF to design targeted regulatory reforms for the banking sector—including the asset quality review—and with the World Bank on strengthening the deposit insurance scheme.

“The loan is accompanied by a $1 million grant from ADB’s Technical Assistance Special Fund to provide advisory, knowledge, and institutional capacity building for Sri Lanka’s Ministry of Finance and CBSL.”

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Sri Lank in blackout as power grid hit by cascading failure

ECONOMYNEXT – Sri Lanka suffered a blackout as Saturday evening as the state-run Ceylon Electricity Board grid was hit by a cascading power failure.

The cascading failure is believed to have been triggered by the failure of the Kothmale-Biyagama transmission line.

“The Ceylon Electricity Board wishes to inform our customers that due to the failure of Kotmale – Biyagama main transmission line, an island wide power failure has occurred,” CEB Spokesman Noel Priyantha said.

“Step by step restorations are underway and it may take few hours to completely restore the power supply.”

With hydro plants running flat out, a outage of the line tends to create a big imbalance in the demand and supply, leading to tripping of more lines and generators.

Lines can trip due to lightening strikes, or equipment failures.

Sri Lanka last suffered a cascading failure in December 2021, due to the failure of the same transmission line.

RelatedSri Lanka power blackout as grid hit by cascading failure

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Sri Lanka to host regional Food and Agriculture Organization conference

ECONOMYNEXT – Sri Lanka will host the 37th session of the Asia Pacific Regional Conference (APRC) of the United Nations Food and Agriculture Organization (FAO), from February 19-22, 2024 in Colombo.

The Conference will bring together agriculture ministers and officials from 46 countries across the region to discuss challenges in food and agriculture.

“The 37th APRC will provide a vital platform for regional collaboration, benefitting the agricultural landscape, fisheries sector and environment of Sri Lanka,” Minister Mahinda Amaraweera said at a press briefing on Friday (8) to announce the conference.

FAO has had an active presence in Sri Lanka for over 40 years. “FAO has supported the country in the implementation of Good Agricultural Practices (GAP), and the development of the fisheries sector for growth and climate resilience,” Vimlendra Sharan, FAO Representative for Sri Lanka and the Maldives said.

“The APRC conference will be an opportunity to highlight the innovative approaches introduced in partnership with the government.”

By hosting APRC, Sri Lanka hopes to demonstrate the country’s dedication to the growth of sustainable agriculture, and showcase its commitment to sustainable agricultural development.

The APRC agenda will include a forum on agritourism, especially requested by the Sri Lankan government.

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