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Friday December 9th, 2022

Moody’s downgrades Bank of Ceylon, HNB, Sampath after Sri Lanka sovereign rating cut

ECONOMYNEXT – Moody’s Investors Service has downgraded the long-term foreign currency deposit ratings of Bank of Ceylon (BOC), Hatton National Bank PLC (HNB) and Sampath Bank PLC (Sampath) to Caa1 from B3 after a cut in the sovereign rating.

“The three banks have significant credit exposure to the sovereign through their holdings of government securities and lending to the domestic economy, which is itself correlated to sovereign creditworthiness,” the rating agency said.

“Moody’s expects the banks’ asset quality to worsen significantly as a result of coronavirus disruptions, although the increase in problem loans will not be evident until 2021 because of regulatory forbearance measures, including a moratorium on loan repayments.”

Moody’s said it had also lowered Sri Lanka’s Macro Profile – a key input to the banks’ Baseline Credit Assessment – to ‘Weak-‘ from ‘Weak’, to reflect the deterioration in the operating environment.

The full statement is reproduced below:

Moody’s downgrades three Sri Lankan banks; outlooks stable

Singapore, September 29, 2020 — Moody’s Investors Service has today downgraded the long-term foreign currency deposit ratings of Bank of Ceylon (BOC), Hatton National Bank PLC (HNB) and Sampath Bank PLC (Sampath) to Caa1 from B3, and the banks’ long-term local currency deposit ratings to Caa1 from B2.

At the same time, Moody’s has downgraded the Baseline Credit Assessment (BCA) of BOC to caa1 from b3, and those of HNB and Sampath to caa1 from b2.

The rating outlooks, where applicable, are stable.

Today’s rating actions conclude the review for downgrade that was initiated on 20 April 2020, and follow Moody’s downgrade on 28 September 2020 of Sri Lanka’s sovereign rating to Caa1 from B2, with a stable outlook.

RATINGS RATIONALE

The downgrade of the BCAs of BOC, HNB and Sampath is driven by the downgrade of Sri Lanka’s sovereign rating.

The three banks have significant credit exposure to the sovereign through their holdings of government securities and lending to the domestic economy, which is itself correlated to sovereign creditworthiness.

Moody’s has also lowered Sri Lanka’s Macro Profile — a key input to the banks’ BCAs — to Weak- from Weak, to reflect the deterioration in the operating environment.

In particular, the coronavirus outbreak has weighed on Sri Lanka’s already weak economy and has weakened the government’s fiscal position.

Moody’s expects the banks’ asset quality to worsen significantly as a result of coronavirus disruptions, although the increase in problem loans will not be evident until 2021 because of regulatory forbearance measures, including a moratorium on loan repayments.

The banks’ profitability will also deteriorate largely because of higher credit costs and a compression in net interest margins following successive policy rate cuts by the central bank.

The banks’ capital and funding will, however, remain as key strengths.

Moody’s incorporates a high or very high level of government support in the long-term deposit ratings of the three banks. However, this does not lead to any rating uplift because the banks’ BCAs are already at the same level as the sovereign rating.

Moody’s will subsequently withdraw the ratings of BOC. Moody’s has decided to withdraw the ratings of BOC for its own business reasons.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade of the BCAs and long-term deposit ratings of HNB and Sampath is unlikely, given that they are already at the same level as Sri Lanka’s sovereign rating and the outlook on the sovereign rating is stable.

A downgrade of Sri Lanka’s sovereign rating could lead to a downgrade of the BCAs and long-term deposit ratings of HNB and Sampath.

Moody’s could also downgrade the banks’ BCAs if there is a material deterioration in asset quality. A significant decline in capitalization could also pressure the banks’ BCAs.

The principal methodology used in these ratings was Banks Methodology published in November 2019 and
available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865 .

Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Bank of Ceylon, headquartered in Colombo, reported total assets of LKR2,722 billion at 30 June 2020.

Hatton National Bank PLC, headquartered in Colombo, reported total assets of LKR1,244 billion at 30 June
2020.

Sampath Bank PLC, headquartered in Colombo, reported total assets of LKR1,045 billion at 30 June 2020.

LIST OF AFFECTED RATINGS AND ASSESSMENTS:

Downgrades:

..Issuer: Bank of Ceylon

…. Adjusted Baseline Credit Assessment, downgraded to caa1 from b3

…. Baseline Credit Assessment, downgraded to caa1 from b3

…. Long-term Counterparty Risk Assessment, downgraded to B3(cr) from B2(cr)

…. Long-term Foreign and Local Currency Counterparty Risk Ratings, downgraded to B3 from B2

…. Long-term Foreign Currency Issuer Rating, Downgraded to Caa1 from B2, outlook changed to Stable from Rating Under Review

…. Long-term Foreign Currency Bank Deposit Rating, Downgraded to Caa1 from B3, outlook changed to Stable from Rating Under Review

…. Long-term Local Currency Bank Deposit Rating, Downgraded to Caa1 from B2, outlook changed to Stable from Rating Under Review

..Issuer: Hatton National Bank PLC

…. Adjusted Baseline Credit Assessment, downgraded to caa1 from b2

…. Baseline Credit Assessment, downgraded to caa1 from b2

…. Long-term Counterparty Risk Assessment, downgraded to B3(cr) from B1(cr)

…. Long-term Foreign and Local Currency Counterparty Risk Ratings, downgraded to B3 from B1

…. Long-term Foreign Currency Issuer Rating, downgraded to Caa1 from B2, outlook changed to Stable from Rating Under Review

…. Long-term Foreign Currency Bank Deposit Rating, downgraded to Caa1 from B3, outlook changed to

Stable from Rating Under Review

…. Long-term Local Currency Bank Deposit Rating, downgraded to Caa1 from B2, outlook changed to Stable from Rating Under Review

..Issuer: Sampath Bank PLC

…. Adjusted Baseline Credit Assessment, downgraded to caa1 from b2

…. Baseline Credit Assessment, downgraded to caa1 from b2

…. Long-term Counterparty Risk Assessment, downgraded to B3(cr) from B1(cr)

…. Long-term Foreign and Local Currency Counterparty Risk Ratings, downgraded to B3 from B1

…. Long-term Foreign Currency Issuer Rating, downgraded to Caa1 from B2, outlook changed to Stable from Rating Under Review

…. Long-term Foreign Currency Bank Deposit Rating, downgraded to Caa1 from B3, outlook changed to Stable from Rating Under Review

…. Long-term Local Currency Bank Deposit Rating, downgraded to Caa1 from B2, outlook changed to Stable from Rating Under Review

Affirmations:

..Issuer: Bank of Ceylon

…. Short-term Counterparty Risk Assessment, Affirmed at NP(cr)

…. Short-term Foreign and Local Currency Counterparty Risk Ratings, Affirmed at NP

…. Short-term Foreign and Local Currency Bank Deposit Ratings, Affirmed at NP

..Issuer: Hatton National Bank PLC

…. Short-term Counterparty Risk Assessment, Affirmed at NP(cr)

…. Short-term Foreign and Local Currency Counterparty Risk Ratings, Affirmed at NP

…. Short-term Foreign and Local Currency Bank Deposit Ratings, Affirmed at NP

..Issuer: Sampath Bank PLC

…. Short-term Counterparty Risk Assessment, Affirmed at NP(cr)

…. Short-term Foreign and Local Currency Counterparty Risk Ratings, Affirmed at NP

…. Short-term Foreign and Local Currency Bank Deposit Ratings, Affirmed at NP

Outlook Actions:

..Issuer: Bank of Ceylon

….Outlook, changed to Stable from Rating Under Review

..Issuer: Hatton National Bank PLC

….Outlook, changed to Stable from Rating Under Review

..Issuer: Sampath Bank PLC

….Outlook, changed to Stable from Rating Under Review

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Sri Lanka president slams power regulator chief after conflicting with minister

ECONOMYNET – The powers to change the electricity tariff in Sri Lanka is vested with the Minister of Power and not the Public Utilities Commission (PUCSL), President Ranil Wickremesinghe told the Parliament.

The minister of Power and Energy, Kanchana Wijesekara has requested an upward price revision to be implemented in two phases both in January and July next year, saying the recent tariff hike was not enough for the state-run utility provider Ceylon Electricity Board (CEB) to continue uninterrupted power supply.

However, Jaynaka Ratnayake, the Chairman of the PUCSL had said  the recent tariff hike is enough for the CEB to cover the cost of production and it will not allow another price hike. However, he has said a twice a year price revision is necessary though it should be in April and October instead of January and July.

President Wickremesinghe said the PUCSL chief was opposing the tariff hike due to his personal reasons.

“The power is vested with the Minister and me. I am the one who made the PUCSL act and I know what is in it,” Wickremesinghe told the parliament on Thursday. quoting a letter from the Attorney General which mentioned provisions in the island nation’s Electricity Act.

Accordingly the Act, the PUCSL would be statutorily obliged to give effect to such policy. It is observed that neither the Act nor the PUCSL Act contains any provisions that empowers the PUCSL to change or act invariant of such policy guidelines.

“The Chairman of the PUCSL is misguiding the general public. I have to meet him and see,” Wickremesinghe said.

WIckremesinghe said the Chairman does not want the tariff hike because he owns one of the highest electricity consuming companies.

“He is the Chairman of the Trillium corporation. It is the firm that takes up the most energy”, he said.

The Trillium group is managed by Janaka Ratnayake and he also holds positions as the chairman and CEO of Trillium Property Management & Services Ltd., City Housing and Real Estate PLC, Trillium Residencies Ltd., Computer Care (Pvt) Ltd., and Rent a Comp Services (Pvt) Ltd., and JR Management Consultants (Pvt) Ltd.

“It means when the electricity bill increases, his expenses increase as well”

He said the CEB still has a loss of 300 billion rupees since 2013 and it needs to be covered.

The CEB issue can be solved only in three ways, either printing more money, increasing value added tax or increasing the tariffm, he said. (Colombo/Dec08/2022)

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Sri Lanka President bemoans over inconsistent LNG deals

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe bemoaned over successive governments’ liquefied natural gas (LNG) deal that has brought in all the world powers into the discussion.

Wickremesinghe’s center-right United National Party (UNP) had discussions with India and Japan between 2002-2004 for an LNG project.

“Following dialogues with India and Japan, the UNP government could come to agreements to get two LNG power plants. After we were defeated the successor government, without cancelling those agreements granted it to New Fortress company in USA,” Wickremesinghe told the parliament.

“Thereafter, as they did not like New Fortress, they gave it back to Pakistan and China. So within the same premises, there were China, Pakistan, India, USA, Japan and only Russia was not there.”

“It was wonderful that a world war did not ignited there as there were five main powers in the world.”

“Now there is no LNG or anything here and now they ask me to solve this issue.”

Wickremesighe’s outburst comes as his government is forced to raise tariffs on power prices after successive governments failed to implement cheap and renewable power generation projects.

He said a total loss for the state-run Ceylon Electricity Board since 2013 was 300 billion rupees and a possible drought next year could increase the 2023 electricity cost to 420 billion rupees.

“If it rained, we need Rs. 352 billion while Rs. 295 is required if rained so much to have floods. How are we going to find this money? We would have to print money, but Rupee would depreciate. We would have to increase VAT but it would increase the price of all commodities or to charge it direct.” (Colombo/Dec08/2022)

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Air quality drop forces Sri Lanka to close schools; public warned

ECONOMYNEXT – A rapid drop in air quality in Sri Lanka has forced the Colombo government to close all schools across the country after a deep depression over Southeast Bay of Bengal, officials said.

The Education Ministry, issuing a special notice on Thursday said, it has decided to close all government schools for Friday, after discussing with the officials in Meteorology Department and Disaster Management Center.

An official said the drop was due to the deep depression over Southeast Bay of Bengal carrying the air from India.

Due to the depression over South east Bay of Bengal (370 km east of Trincomalee) has concentrated into a cyclonic storm “Mandous” by Wednesday night.

“Cyclone in the Bay of Bengal that is the prime reason for the increase in the pollution load as we receive more wind from India,” H.D.S.Premasiri, Senior Scientist, Coordinator-Air Quality, noise and vibrations at National Building Research Organization (NBRO) told EconomyNext on Thursday.

Officials said there is a likelihood of the cyclone moving west-northwestwards and further intensify into a severe cyclonic storm tonight and cross North Tamil-Nadu, Puducherry and South Andhra Pradesh coast around midnight of 09 th December and the maximum wind speeds will be 70-90 km per hour and can increase up to 90 in sea areas.

“Hopefully, today we can expect normalization in the environment and the effects of the fog will disappear”.

According to the NBRO’s real time Air Quality Index Indicator, the quality of air in northwestern coastal district of Puttalam has dropped drastically and indicated a particular matter (PM) 132, while Kegalle (85) and Mannar (84) were the districts which had next worst air quality.

According to NBRO, Battaramulla, Polonnaruwa, Dambulla, Kegalle, Mannar and Puttalam indicate a poor quality of air due to higher PM.

“The fog will lead to lung and breathing issues,” Premasiri said.

“So the public is warned to wear a mask when they travel outside. The pollution highly prevails in city areas and has a less impact on the other parts of the areas.” (Colombo/ Dec08/2022)

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