Fitch affirms Hatton National Bank at ‘A(lka)’; Outlook Stable

Fitch Ratings has affirmed Sri Lanka-based Hatton National Bank PLC’s (HNB) National Long-Term Rating at ‘A(lka)’. The Outlook is Stable. 
At the same time, Fitch has affirmed HNB’s Sri Lankan rupee senior unsecured debt at ‘A(lka)’. The ratings on the bank’s proposed and outstanding Sri Lankan rupee-subordinated debt have been affirmed at ‘BBB+(EXP)(lka)’ and ‘BBB+(lka)’, respectively.
Fitch said HNB’s National Long-Term Rating reflects its own financial strength, which is highly influenced by the bank’s exposure 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, which has put pressure on HNB’s financial profile, particularly capitalisation and funding. 
The rating also reflects HNB’s superior domestic franchise as Sri Lanka’s fourth largest commercial bank.
HNB’s high-risk profile, similar to the peers, stems from its large exposure to sovereign risk, via the defaulted foreign currency-denominated sovereign bonds (end-2023: 10 percent of assets) and a further 33 percent of assets in rupee-denominated treasury securities, all of which make the bank vulnerable to the sovereign’s repayment capacity and liquidity position. HNB has the highest exposure to sovereign bonds among local banks.
The bank’s operating profit/risk-weighted assets ratio improved to 5.9 percent by end-1Q24, due primarily to lower credit costs, which more than offset the decrease in the net interest margin (1Q24: 5.5 percent, 2023: 7.0 percent).