ECONOMYNEXT – Fitch Ratings has affirmed Citibank – Colombo Branch’s national long-term rating at ‘AAA(lka)’; the outlook is stable.
“We expect the country’s economic recovery to boost lending opportunities for the branch, leading to the deployment of its excess liquidity position,” the rating agency said.
“We expect profitability to normalise in the near to medium term, as the net interest margin (NIM) shrinks amid lower interest rates.”
Reduced volatility in interest and exchange rates could suppress other income sources, Fitch said.
The full statement is reproduced below:
Fitch Affirms Citibank N.A.- Colombo Branch at ‘AAA(lka)’; Outlook Stable
Fitch Ratings – Colombo – 11 Mar 2025: Fitch Ratings has affirmed Citibank N.A.- Colombo Branch’s (CitiSL) National Long-Term Rating at ‘AAA(lka)’. The Outlook is Stable.
Key Rating Drivers
Head Office Support: CitiSL’s rating reflects our expectation of a high probability of support from the head office – Citibank, N.A. (Citi, A+/Stable/a) – if required. This is subject to any regulatory constraints on remitting money into Sri Lanka, given CitiSL’s status as a branch of Citi, making it part of the same legal entity. Our support expectation also stems from the alignment of CitiSL’s objectives and strong operational integration with Citi. The small size of the branch, at only 0.01% of Citi’s total assets, implies that support would not be burdensome for Citi.
Strong Credit Profile: Citi’s Long-Term Issuer Default Rating (IDR) is significantly higher than Sri Lanka’s Long-Term Local-Currency IDR of ‘CCC+’ and CitiSL’s support-driven credit profile is among the strongest of rated domestic entities. This results in CitiSL’s rating being at the highest end of the National Rating scale for Sri Lanka.
Liquid Balance Sheet: CitiSL’s balance sheet is highly liquid. Government securities, balances and placements within the wider Citi group accounted for 63% of assets at end-2024 (end-2023: 75%). A further 27% of assets (end-2023: 11%) were placed with the Central Bank of Sri Lanka. We expect the country’s economic recovery to boost lending opportunities for the branch, leading to the deployment of its excess liquidity position.
Asset-Quality Risk Mitigated: A focus on top-tier local and multinational companies has enabled CitiSL to withstand the asset-quality challenges in the sector. CitiSL does not have any non-performing loans, though 64% of loans were classified as Stage 2 at end-2024 due to risks associated with the sovereign.
High Capitalisation Despite Profit Repatriation: We expect CitiSL to sustain its above-average capital ratios, despite profit repatriation (common equity-Tier 1 capital ratio of 27.6% at end-2024, end-2023: 26.3%). The branch repatriated almost all of its 2022 and 2023 profit in 2023 and 2024, respectively, and we expect this to continue in the near to medium term.
Profitability to Normalise: We expect profitability to normalise in the near to medium term, as the net interest margin (NIM) shrinks amid lower interest rates, while reduced volatility in interest and exchange rates could suppress other income sources. Operating profit/risk-weighted assets remained high at 15.1% at end-2024, despite falling from 26% in 2023, on account of a lower NIMs and other non-interest income.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The rating would likely be downgraded on material changes to our expectation of support from Citi, such as a change in the branch’s legal status or the branch being divested. A downgrade of the sovereign’s Long-Term Local-Currency IDR or other developments that affect the branch’s ability to service its obligations could also lead to a multiple-notch downgrade of CitiSL’s National Rating.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
There is no rating upside for the National Long-Term Rating, as it is already at the highest point on the scale.
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
CitiSL’s rating is linked with Citi’s Long-Term IDR, based on its legal status as a branch of Citi.
(Colombo/Mar12/2025)
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