ECONOMYNEXT – Sri Lanka’s Bank of Ceylon’s proposed rupee-denominated Basel III-compliant subordinated debentures of up to 15 billion rupees has been assigned a final National Long-Term Rating of ‘A(lka)’ by Fitch Ratings.
“BOC’s National Long-Term Rating is used as the anchor rating for this instrument because the rating reflects the bank’s standalone financial strength and best indicates the risk of the bank becoming non-viable,” Fitch said.
The proposed debentures will mature in five years and be listed on the Colombo Stock Exchange.
The full statement is reproduced below:
Fitch Rates Bank of Ceylon’s Basel III Subordinated Debt Final ‘A(lka)’
Fitch Ratings – Colombo – 02 May 2025: Fitch Ratings has assigned Bank of Ceylon’s (BOC, CCC+/CCC+/AA-(lka)/Stable) proposed Sri Lankan rupee-denominated Basel III-compliant subordinated debentures of up to LKR15 billion a final National Long-Term Rating of ‘A(lka)’.
The final rating is the same as the expected rating assigned on 2 April 2025, as it follows the receipt of documents conforming to information already received.
Key Rating Drivers
The proposed debentures will mature in five years and be listed on the Colombo Stock Exchange. The bank plans to use the proceeds to strengthen its Tier 2 capital base and liquidity position, bridge maturity mismatches, and support the expansion of its asset base.
The proposed debentures will qualify as Basel III-compliant regulatory Tier 2 capital. The debentures include a non-viability clause whereby the notes will be converted to an Additional Tier 1 (AT1) instrument on a permanent basis, subject to the occurrence of a trigger event, as determined by the Governing Board of the Central Bank of Sri Lanka.
Fitch rates the proposed debentures two notches below the bank’s National Long-Term Rating anchor. This reflects Fitch’s baseline notching for loss severity for this type of debt, and our expectations of poor recoveries upon non-performance. There is no additional notching for non-performance risks, as the notes do not incorporate going-concern loss-absorption features and will only convert to AT1 at the point of non-viability.
BOC’s National Long-Term Rating is used as the anchor rating for this instrument because the rating reflects the bank’s standalone financial strength and best indicates the risk of the bank becoming non-viable.
For details of the key rating drivers and rating sensitivities of BOC’s National Long-Term Rating, see Fitch Upgrades 10 Sri Lankan Banks’ National Ratings and Affirms Five after Scale Recalibration, published on 21 January 2025.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A downgrade of the bank’s National Long-Term Rating would lead to a downgrade of the subordinated debt rating.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of the bank’s National Long-Term Rating would lead to an upgrade of the subordinated debt rating.
BOC has a 1.78% equity stake in Fitch Ratings Lanka Ltd. No shareholder other than Fitch, Inc. is involved in the day-to-day rating operations of, or credit reviews undertaken by, Fitch Ratings Lanka Ltd. (Colombo/May2/2025)
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