Fitch Rates National Development Bank's Senior Debentures 'AA-(lka)(EXP)'
The debentures, which will have a tenor of five years and carry fixed coupons, will be listed on the Colombo Stock Exchange. Fitch expects NDB to use the proceeds to refinance maturing multilateral funding.
The final rating is subject to the receipt of final documentation conforming to information already received.
KEY RATING DRIVERS
The proposed debentures are rated at the same level as NDB's National Long-Term Rating in accordance with Fitch's criteria as they constitute unsecured and unsubordinated obligations of the bank. The issuer rating is driven by the bank's intrinsic financial strength. It captures NDB's long and stable operating history and its developing franchise as a commercial bank.
NDB has continued to sustain better asset quality than its peers. However, Fitch expects NDB's asset quality to weaken alongside the seasoning of the loan book, as is already evident in an uptick in its reported gross NPL ratio to 2.5% at end-2014 from 2.4% at end-2013. Its loan composition is likely to remain stable, dominated by corporate banking at 48%, with retail banking and SMEs accounting for 36% and project finance accounting for a further 14% at end-2014.
Capitalisation has deteriorated towards levels of its commercial bank peers as NDB's 27.7% loan growth in 2014 materially exceeded the average 13.7% growth for the banking sector. As a result, NDB's Fitch core capital ratio declined to 13.7% at end-2014 (2013: 15.2%). It also resulted in a high loans/deposits ratio of 119% at end-2014, with the bank relying on funding from multilateral agencies (16% of funding at end-2014). NDB's ratio of current and savings accounts to total deposits has remained low at 24% at end-2014.
The rating on the proposed debentures will move in tandem with NDB's National Long-Term Ratings.
Fitch believes that NDB's capitalisation and its rating would come under pressure if the bank sustains its growth momentum, in the absence of other mitigating factors.
The consolidation of NDB's franchise alongside its ability to sustain strong credit metrics could result in an upgrade of NDB's ratings.
NDB's merger discussions with DFCC Bank PLC (B+/Stable/AA-(lka)) appear to have slowed as the authorities' stance following the change in presidency earlier this year remains unclear. Fitch is of the view that synergies from such an amalgamation would be credit neutral for both banks in the short to medium term.
A full list of NDB's ratings follows:
Long-Term Foreign- and Local-Currency IDRs: 'B+'; Stable Outlook
Short-Term Foreign-Currency IDR: 'B'
Viability Rating: 'b+'
Support Rating : '4'
Support Rating Floor: 'B'
National Long-Term Rating: 'AA-(lka)'; Stable Outlook
Outstanding subordinated debentures: 'A+(lka)'
Proposed senior debentures: 'AA-(lka)(EXP)'