Fitch affirms Habib Bank - Sri Lanka Branch at ‘A(lka)’

Fitch Ratings has affirmed Habib Bank Limited - Sri Lanka Branch’s (HBLSL) National Long-Term Rating at ‘A(lka)’. The Outlook is Stable.
The rating reflects Fitch’s expectation that HBLSL will receive support, if required, from the head office of Habib Bank Limited (HBL), Pakistan’s largest bank. The rating is underpinned by HBLSL’s status as a branch of HBL. This means it is part of the same legal entity as HBL, subject to any regulatory constraints on HBL remitting money from Pakistan into 
Sri Lanka.
Fitch’s assessment factors in the parent’s credit profile, which is constrained by the Pakistan sovereign rating of ‘CCC’, given the bank’s interconnectedness with the state. The assessment also takes into consideration HBLSL’s strong operational integration with HBL, and the small size of the branch, which makes up 0.3 percent of HBL’s total assets.
HBLSL’s operation in Sri Lanka is small compared with that of other Fitch-rated banks, with a market share of only 0.03 percent of system loans at end-3Q23. HBLSL’s business model is concentrated in riskier mid- and small-sized corporate borrowers and it faces significant competition from larger peers.

Fitch expects the bank’s liquidity ratios to normalise over the medium term as loan growth resumes. HBLSL’s all-currency liquidity coverage ratio (LCR) of 1,069 percent at end-3Q23 is supported by its large cash balances and investments in Sri Lankan treasury securities. These make up nearly 60 percent of its total assets, fully covering its deposit obligations by our estimates. Its liquidity position is supported by access to HBL funding, given the parent’s adequate LCR of 272 percent and stable funding position, reflected in a gross loan/customer deposit ratio of 50 percent and net stable funding ratio of 157 percent.