Fitch affirms Citibank Lankan branch at ‘AAA(lka)’

Fitch Ratings Lanka has affirmed the Citibank N.A. Colombo branch’s (CitiSL) national long-term rating at ‘AAA(lka)’.The Outlook is ‘Stable’.

CitiSL’s rating reflects the credit profile and financial strength of Citibank N.A. The rating is linked with Citibank N.A.’s IDR to reflect CitiSL’s legal status as a branch ofCitibank N.A., which makes it part of the same legal entity. It also reflects the relatively smallsize of the branch (less than one percent of the total assets of Citibank, N.A.) and therefore, any supportwould not be material to the head office.
Citibank N.A.’s rating is higher than Sri Lanka’s Long-Term Localand ForeignCurrency IDRs of’B+’/Stable and as a result, CitiSL’s rating is at the highest end of the national rating scale forSri Lanka. Fitch believes that support from Citibank N.A. would be forthcoming if required,subject to any regulatory constraints on remitting money into Sri Lanka. CitiSL is operationally integrated with Citigroup through the use of common systems and regularreporting. Its strategic objectives are also aligned with those of the group. CitiSL’s stringent credit evaluation framework has helped the branch maintain sound assetquality with zero non-performing loans since 2009. However, it has also led to a highlyconcentrated loan book, with the top 20 largest loans accounting for 97.0 percent of total lending atend-1H17.

Fitch expects the branch to maintain sufficient capitalisation to support its business plansdespite regular profit repatriations. CitiSL’s Fitch Core Capital ratio remained high at 34.6 percent atend-June 2017,although it declined from the 44.5 percent at end-2016 due to aggressive loan growthin 1H17. CitiSL’s highly concentrated deposit base declined to 76.3 percent of the branch’s funding mix at end-1H17 from 85.6 percent at end-2015, due to an increase in inter-branch borrowings. However, Fitchbelieves that CitiSL’s liquidity position is stable as the branch has access to intergroup funding, if needed.