Fitch downgrades Cargills Bank to ‘A+(lka); places on Rating Watch Negative

Fitch Ratings has downgraded Cargills Bank Limited’s (CBL) National Long-Term Rating to ‘A+(lka)’, from ‘AA-(lka)’, and has placed the rating on Rating Watch Negative (RWN).

Fitch said the downgrade is driven by its assessment that the ability of CBL’s ultimate parent - CT Holdings PLC (CTH) - to extend extraordinary support to CBL has weakened amid the challenging domestic operating environment. 

“CBL’s rating is based on our expectation of support from CTH, which takes into consideration a moderate level of operational integration, shared brand name and record of ordinary support,” the rating agency said.

“The RWN reflects heightened near-term downside risks to Sri Lankan banks, including CBL, from constrained access to foreign-currency funding and the resulting stress experienced by banks in the system. We believe mounting currency stress is increasing the likelihood of restrictions being imposed on CBL’s ability to service obligations in foreign and local currency,” it added.

Fitch noted that this risk is exacerbated by the significant deterioration in the Sri Lankan sovereign’s credit profile (Long-Term Foreign-Currency Issuer Default Rating (IDR) of ‘RD’ and Long-Term Local-Currency IDR of ‘CCC’) and the ensuing risks to the stability of the financial system. This has led Fitch to place the National Ratings of rated Sri Lankan banks on RWN. “We aim to resolve the RWN in the next six months, depending on the evolution of CBL’s funding and liquidity position and our assessment of support, which could result in a multiple notch downgrade. 

We regard CBL’s intrinsic financial strength to be much weaker than its support-driven rating, with a weak financial profile and small and developing franchise. CBL’s standalone financial profile is the weakest of Fitch-rated Sri Lankan banks,’ the rating agency added.