10 January 2025 12:12 am Views - 52
Fitch Ratings has upgraded Bank of Ceylon’s (BOC) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to ‘CCC+’ from ‘CCC-’.
The ratings do not have an Outlook because of the high volatility at this rating level, in line with Fitch’s rating definitions.
Fitch has also upgraded BOC’s Viability Rating (VR) to ‘ccc+’ from ‘ccc-’, affirmed its Short-Term IDR at ‘C’ and its Government Support Rating (GSR) at ‘ns’.
BOC’s National Long-Term Rating of ‘A(lka)’/Stable was not considered in this review, said Fitch in its commentary.
The rating actions follow the upgrade of Sri Lanka’s Long-Term Foreign-Currency IDR to ‘CCC+’, from ‘RD’, and Local-Currency IDR to ‘CCC+’, from ‘CCC-’, on 20 December 2024.
The upgrade of BOC’s IDRs is driven by the upgrade of its VR, which stems from the improvement in Sri Lanka’s credit profile following the completion of a debt restructuring.
“We believe this has reduced sovereign-related stress on Sri Lankan banks’ operating environment (OE) as well as on BOC’s financial and non-financial factors, supporting the improvement in BOC’s overall credit profile,” Fitch said.
BOC’s ratings are closely linked to the sovereign’s credit profile given its large exposure to the domestic economy, government securities and lending to the broader public sector.
The upward revision in the Sri Lankan banks’ OE score to ‘ccc+’, from ‘ccc-’, primarily stems from the sovereign’s enhanced credit profile after the successful debt restructuring.
Economic reforms implemented since the start of the crisis in 2022 have stabilised the economy, reducing macro-financial stability risks to the banking sector.
Fitch said it expects the improvement to be sustained, supported by its estimated economic growth of 4.1 percent in 2024 and an average of 3.6 percent over 2025-2026.
Further, Fitch has revised BOC’s business profile score to ‘b-’ from ‘ccc-’ following the revision in the OE score and the bank’s continued strong market position as the largest bank in Sri Lanka, accounting for 22 percent of sector assets.
“We expect BOC’s ability to generate and defend business volume and earnings to be bolstered by the OE improvement as well as the bank’s strong local franchise,” said Fitch.