COLOMBO (EconomyNext) – An ‘AAA(lka)’ rating on Sri Lanka’s HSBC branch has been confirmed by Fitch Ratings, which said the bank has seen 20 percent loan growth in the first nine months of the 2014 financial years.
Fitch said the bank’s 20 percent credit growth was driven by a demand for foreign currency denominated loans and 75 percent of its loan book was to corporates.
HSBC Sri Lanka is a branch of The Hongkong and Shanghai Banking Corporation Limited, which has an ‘AA-/Stable’ rating, higher than Sri Lanka’s sovereign rating, allowing Fitch to give the highest domestic rating for the unit.
The full statement is reproduced below:
Fitch Affirms HSBC Sri Lanka Branch at ‘AAA(lka)’; Outlook Stable
Fitch Ratings-Colombo-27 March 2015: Fitch Ratings Lanka has affirmed HSBC Sri Lanka Branch’s (HSBCSL) National Long-Term Rating at ‘AAA(lka)’. The Outlook is Stable.
KEY RATING DRIVERS
HSBCSL’s rating is at the highest end of the National Rating scale and reflects the credit profile and financial strength of The Hongkong and Shanghai Banking Corporation Limited (HKSB; Long-Term Issuer Default Rating (IDR): AA-/Stable).
The rating is tied to HKSB’s IDR because of HSBCSL’s legal status as a branch of HKSB, which makes HSBCSL an extension of the same legal entity as HKSB. HKSB’s rating is higher than Sri Lanka’s Long-Term Local and Foreign Currency IDRs of ‘BB-‘ with Stable Outlook, and as a result, HSBCSL’s rating on the National Rating scale is mapped to ‘AAA(lka)’. Fitch believes that support from HKSB would be forthcoming if required, subject to any regulatory constraints on remitting money into Sri Lanka.
HSBCSL has a competitive advantage over its peers as it can rely on its parent for access to foreign-currency funding. It therefore recorded a higher loan growth of 20% in 9M14 compared to industry average of 5% due to the increase in demand for foreign-currency denominated loans. HSBCSL’s portfolio focuses on large corporate customers active in the export and import trade, with corporate lending accounting for 75% of loans at end-2014. HSBCSL has exposure to the retail segment through its credit card operations (11% of loan book) and personal lending (10% of loan book). HSBCSL continues to have a strong market position in its credit card business.
HSBCSL funds its operations largely through corporate deposits and group borrowings. HKSB has demonstrated support to HSBCSL in the form of funding, which accounted for 39% of HSBCSL’s total funding as at end-September 2014.
HSBCSL is the largest Fitch-rated foreign bank branch in Sri Lanka, and the sixth-largest licensed commercial bank, accounting for 5.9% of banking sector assets at end-9M14. It accounted for less than 1% of HKSB’s assets at end-September 2014.
A downgrade of HSBCSL rating could result from HKSB’s rating falling below Sri Lanka’s IDR. Any changes to Fitch’s expectation of support from HKSB could also have a negative impact on the rating.