Monday, August 22, 2011

Sri Lanka HNB debentures rated 'A+(lka)'

Aug 22, 2011 (LBO) - Fitch Ratings Lanka has assigned Hatton National Bank's (HNB) proposed subordinated debentures of up to 2.0 billion rupees a national long-term rating of 'A+(lka)'.

The issue is rated one notch below HNB's national long-term rating reflecting its debt-like features, a statement said.

The proposed debentures, to be listed on the Colombo Stock Exchange alongside HNB's other listed and rated debentures, will have a maturity of 10 years with principal repayment as a bullet payment on maturity.

Coupon payments will be semi-annual at a fixed rate and do not contain any deferral clauses.

As at June 2011, HNB's tier I and total capital adequacy ratio (CAR) was 9.13 percent and 10.3 percent, at the bank level.

"The subordinated debenture issue will increase HNB's regulatory Tier 2 capital from 2.7 billion rupees as at June 2011 to 4.7 billion rupees and enable the bank to better match projected growth in its housing loan book," Fitch Ratings said.

Fitch estimates that the bank's total regulatory CAR would incrementally rise by about 0.87 percent after the issuance in June 2011, excluding un-audited profit for the six-month period ended June 2011 and the subsequent rights issue announced by the bank.

"However under Fitch's criteria, these securities will receive zero equity credit as they do not allow for going-concern loss absorption," it said.

"By itself, further expected strong growth at the bank will result in a weakening of its capitalisation, as per the agency's measures."

Fitch noted that HNB's loan book steadily increased by 19 percent in 2010 from a year ago and the first half of 2011 as the post-war domestic economy improved.

It shrank by five percent in 2009 similar to other banks.

About 42 percent of HNB's loan book comprised corporate loans, with retail/consumer loans and SME loans accounting for 29 percent and 13 percent at end-December 2010.

At the same time, housing loans, leasing and pawning (gold-backed loans) accounted for nine percent, seven percent and 13 percent of loans. Pawning was included under consumer loans.

HNB's current and savings account improved in 2010, accounting for 54.2 percent of total deposits as at end-December 2010 (46.5 percent as at December 2009).

The comparative figure as at June 2011 was 50.3 percent.

"This secular change in HNB's deposit mix will be positive to HNB's overall net interest margins," Fitch said.

HNB is a licensed commercial bank in which the government of Sri Lanka, entities related to the Stassen Group (excluding CBD Exports) and the Browns Group held 27 percent, 18 percent and seven percent of voting equity at December 2010.

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