ECONOMYNEXT – Fitch Ratings has raised the national long-term ratings of Habib Bank Limited – Sri Lanka Branch (HBLSL) and MCB Bank Limited – Sri Lanka Branch (MCBSL) to ‘AA(lka)’, from ‘AA-(lka)’. The outlook is stable.
The upgrade reflects the enhanced credit profile of their respective head offices, following the upgrade of Pakistan’s Long-Term Foreign-Currency Issuer Default Rating to ‘B-‘ from ‘CCC+’ on 15 April 2025, Fitch said.
“The ratings of HBLSL and MCBSL reflect Fitch’s expectation of support, if required, from their respective head offices.”
The head offices’ credit profiles remain constrained by Pakistan’s ‘B-‘ rating, given these banks’ high interconnectedness with the state, Fitch said.
The full statement is reproduced below:
Fitch Upgrades Sri Lankan Branches of Habib Bank and MCB Bank to ‘AA(lka)’; Outlook Stable
Fitch Ratings – Colombo – 17 Apr 2025: Fitch Ratings has upgraded the National Long-Term Ratings of Habib Bank Limited – Sri Lanka Branch (HBLSL) and MCB Bank Limited – Sri Lanka Branch (MCBSL) to ‘AA(lka)’ from ‘AA-(lka)’. The Outlook is Stable.
Key Rating Drivers
Strengthened Head-Office Support: The upgrade of HBLSL’s and MCBSL’s national ratings reflects the enhanced credit profile of their respective head offices, Habib Bank Limited (HBL) and MCB Bank Limited (MCB), following the upgrade of Pakistan’s Long-Term Foreign-Currency Issuer Default Rating to ‘B-‘ from ‘CCC+’ on 15 April 2025.
This indicates the head offices’ greater ability to provide extraordinary support to their Sri Lankan branches. The head offices’ credit profiles remain constrained by Pakistan’s ‘B-‘ rating, given these banks’ high interconnectedness with the state.
The ratings of HBLSL and MCBSL reflect Fitch’s expectation of support, if required, from their respective head offices. The ratings are underpinned by HBLSL’s and MCBSL’s status as the branches of HBL and MCB, respectively, which means they form part of the same legal entity as their head offices.
The branches are therefore subject to any regulatory constraints on the head offices remitting money from Pakistan into Sri Lanka. Our assessment also takes into consideration the local branches’ strong operational integration with their head offices and the small size of each branch, making up less than 1% of consolidated assets.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
HBLSL’s and MCBSL’s National Ratings would be downgraded if there are material changes to Fitch’s expectation of support from HBL and MCB, respectively, such as a change in the branches’ legal status or a divestment of the branches.
A downgrade of Pakistan’s ‘B-‘ Long-Term Issuer Default Rating or weakening ability of the parents relative to the Pakistan sovereign, or any other developments that affect the branches’ ability to service their obligations, could also lead to a multiple-notch downgrade of the National Ratings.
A change in the relativities among the credit profiles of issuers based in Sri Lanka could also prompt a downgrade.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
HBLSL’s and MCBSL’s National Ratings could be upgraded should their head offices’ credit profiles improve, reflecting greater ability to provide extraordinary support to their Sri Lankan branches. This assumes our expectation of the parents’ propensity to support remains unchanged.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
HBLSL’s and MCBSL’s ratings are linked to HBL’s and MCB’s credit profiles, respectively, based on their legal status as branches. (Colombo/Apr17/2025)
