Fitch Ratings has revised the Outlook on DFCC Bank Plc (DFCC) to Stable from Negative.
It has also affirmed the Long-Term Issuer Default Ratings (IDR) of the following Sri Lanka-based banks:
- National Savings Bank (NSB) at ‘B+’; Outlook Stable
- Bank of Ceylon (BOC) at ‘B+’; Outlook Stable
- DFCC at ‘B+’; Outlook revised to Stable from Negative
Fitch has also affirmed the National Long-Term Ratings of the following banks:
- NSB at ‘AAA(lka)’; Outlook Stable
- BOC at ‘AA+(lka)’; Outlook Stable
- DFCC at ‘AA-(lka)’; Outlook revised to Stable from Negative
- People’s Bank (Sri Lanka) (People’s Bank) at ‘AA+(lka)’; Outlook Stable
- Commercial Bank of Ceylon Plc (CB) at ‘AA(lka)’; Outlook Stable
- Hatton National Bank Plc (HNB) at ‘AA-(lka)’; Outlook Stable
- National Development Bank Plc (NDB) at ‘A+(lka); Outlook Stable
- Sampath Bank Plc (Sampath) at ‘A+(lka)’; Outlook Negative
- Seylan Bank Plc (Seylan) at ‘A-(lka)’; Outlook Stable
The rating action follows Fitch’s periodic review of the large bank peer group. Fitch has maintained the negative outlook on Sri Lanka’s banking sector as it expects challenging operating conditions to persist into 2018.
The sector outlook is sensitive to trends in the operating environment. Bank credit profiles should broadly remain intact, but there could be modest pressure on the ratings of some banks if sufficient loss-absorption buffers are not maintained.
Capitalisation remains a key issue facing the sector. There was some capital-raising among banks in 2017 and Fitch expects this to continue into 2018. Sri Lankan banks are required to phase in higher capital buffers to meet Basel III regulations that come into effect on 1 January 2019.
In addition, Fitch believes there could be a significant impact on banks’ capitalisation through the adoption of Sri Lanka Financial Reporting Standards (SLFRS) 9 in 2018, although the effect of this on regulatory capital ratios could be spread out.