Sri Lankan banks’ operating environment (OE) continues to show signs of stabilisation, Fitch Ratings said, as it is evident in sustained improvements in reported headline macroeconomic indicators, supporting the recovery in banks’ operational flexibility. 

It noted that further improvement to the banks’ OE remains contingent on successful execution of the sovereign’s external debt-restructuring exercise alongside the restoration of the sovereign’s creditworthiness. This is given the strong link between sovereign financial health and banks’ operating conditions, the rating agency said in a commentary yesterday.

Fitch Ratings yesterday affirmed the ratings of five banks. While affirming Sri Lanka-based Sampath Bank PLC’s (Sampath) National Long-Term Rating at ‘A(lka)’, it affirmed Seylan Bank, DFCC Bank, Nations Trust Bank, and National Development Bank at ‘A-(lka)’. The outlook is stable for all the five banks.

The National Long-Term Rating reflects the own financial strength of the banks. The rating is influenced by the exposure of the banks to the sovereign’s weak credit profile (Long-Term Foreign-Currency Issuer Default Rating (IDR): RD; Long-Term Local-Currency IDR: CCC-) and the ongoing sovereign debt restructuring. The rating agency noted that a positive rating action on the sovereign may lead to an upgrade. A sustained improvement in key credit metrics beyond its base-case expectations relative to peers, could also lead to an upgrade, it said.