Fitch rates Seylan Bank’s subordinated debt BBB+(lka)(EXP)

Fitch Ratings has assigned Seylan Bank PLC's (A-(lka)/Stable) proposed Basel II-compliant subordinated debenture issue of up to LKR5bn a National Long-Term Rating of 'BBB+(lka)(EXP)'. The debentures will have tenors of five and seven years and carry fixed and floating coupons. The debentures are to be listed on the Colombo Stock Exchange and the bank plans to use the proceeds to fund loan growth, strengthen its Tier 2 capital base and reduce structural maturity mismatches. The final rating is subject to the receipt of final documentation conforming to information already received. KEY RATING DRIVERS The proposed subordinated debentures are rated one notch below Seylan Bank's National Long-Term Rating to reflect the subordination to senior unsecured creditors. Seylan Bank's rating reflects Fitch's view that the government of Sri Lanka (B+/Negative) would provide it extraordinary support in case of need because the regulator has classified it as one of six domestic systemically important banks. Fitch assigns Seylan Bank a lower support-driven rating because it has a smaller market share compared with its peers. RATING SENSITIVITIES The rating on the proposed debentures will move in tandem with Seylan Bank's National Long-Term Ratings. Any change in Sri Lanka's sovereign rating or the perception of state support to Seylan could result in a change in its National Long-Term Rating. Fitch would consider an upgrade of Seylan's ratings if the bank's standalone rating - currently at a notch below its support-driven rating - moves above the support-driven rating through a significant and sustained improvement in asset quality and provisioning, and its other credit metrics are in line with that of higher-rated peers.