Sri Lanka Citibank branch ‘AAA(lka)’ rating confirmed by Fitch
ECONOMYNEXT – Fitch Ratings has confirmed an ‘AAA(lka)’ rating of the Colombo branch of Citibank N.A with a stable outlook.
Citibank Sri Lanka has a loan book with zero bad loans since 2009, but the loan book is highly concentrated with the top 20 largest loan accounting to 97 percent of total lending by the end of the first half of 2017.
The bank’s deposits were also highly concentrated. The deposit base declined to 76.3 percent of the branch’s funding mix at the end of first half of 2017, from 86.5 percent at end of 2015 due to an increase in inter-branch borrowing.
CitiSL’s Fitch Core Capital ratio remained high at 34.6 percent by June 2017, after falling from 44.5 percent as at end 2017 due to aggressive loan growth in 2017.
The full statement is reproduced below:
Fitch Affirms Citibank N.A. – Colombo Branch at ‘AAA(lka)’; Outlook Stable
Fitch Ratings-Colombo-29 August 2017: Fitch Ratings Lanka has affirmed Citibank N.A. – Colombo Branch’s (CitiSL) National Long-Term Rating at ‘AAA(lka)’. The Outlook is Stable.
KEY RATING DRIVERS
CitiSL’s rating reflects the credit profile and financial strength of Citibank, N.A. (Long-Term Issuer Default Rating (IDR) at A+/Stable and Viability Rating at a).
The rating is linked with Citibank, N.A.’s IDR to reflect CitiSL’s legal status as a branch of Citibank, N.A., which makes it part of the same legal entity. It also reflects the relatively small size of the branch (less than 1% of the total assets of Citibank, N.A.) and therefore, any support would not be material to the head office.
Citibank, N.A. ‘s rating is higher than Sri Lanka’s Long-Term Local- and Foreign-Currency IDRs of ‘B+’/Stable and as a result, CitiSL’s rating is at the highest end of the National Rating scale for Sri Lanka. Fitch believes that support from Citibank, N.A. would be forthcoming if required, subject to any regulatory constraints on remitting money into Sri Lanka.
CitiSL is operationally integrated with Citigroup through the use of common systems and regular reporting. Its strategic objectives are also aligned with those of the group.
CitiSL’s stringent credit evaluation framework has helped the branch to maintain sound asset quality with zero non-performing loans since 2009. However, it has also led to a highly concentrated loan book, with the top 20 largest loans accounting for 97% of total lending at end-1H17.
Fitch expects the branch to maintain sufficient capitalisation to support its business plans despite regular profit repatriations. CitiSL’s Fitch Core Capital ratio remained high at 34.6% at end-June 2017, although it declined from the 44.5% at end-2016 due to aggressive loan growth in 1H17.
CitiSL’s highly concentrated deposit base declined to 76.3% of the branch’s funding mix at end-1H17 from 85.6% at end-2015, due to an increase in inter-branch borrowings. However, Fitch believes that CitiSL’s liquidity position is stable as the branch has access to intergroup funding, if needed.
A downgrade of CitiSL’s rating could result from Citibank, N.A.’s rating falling below Sri Lanka’s IDR, although Fitch sees that as highly unlikely in the near to medium term. Significant changes to Fitch’s expectation of support from CitiBank N.A. could also have a negative impact on the rating.