ECONOMYNEXT – Fitch Ratings has upgraded the national long-term rating of Habib Bank Limited – Sri Lanka Branch to ‘AA-(lka)’, from ‘A(lka)’. The outlook is stable, Fitch Ratings said.
This follows the improved credit profile of the bank’s head office – Habib Bank Limited, Pakistan’s largest bank – following the upgrade of Pakistan’s sovereign rating.
The full statement is reproduced below:
Fitch Upgrades Habib Bank Limited – Sri Lanka Branch to ‘AA-(lka)’; Outlook Stable
Fitch Ratings – Colombo – 12 Aug 2024: Fitch Ratings has upgraded Habib Bank Limited – Sri Lanka Branch’s (HBLSL) National Long-Term Rating to ‘AA-(lka)’, from ‘A(lka)’.
The Outlook is Stable.
KEY RATING DRIVERS
Stronger Head Office Support: The upgrade of HBLSL’s National Rating reflects the improved credit profile of the bank’s head office – Habib Bank Limited (HBL), Pakistan’s largest bank – following the upgrade of Pakistan’s sovereign rating.
This reflects the greater ability of the head office to provide extraordinary support to the Sri Lankan branch.
Fitch upgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating to ‘CCC+’, from ‘CCC’, on 29 July 2024.
The head office’s credit profile remains constrained by the sovereign rating due to its high interconnectedness with the state.
HBLSL’s rating reflects Fitch’s expectation of support, if required, from the head office.
The rating is underpinned by HBLSL’s status as a branch of HBL and part of the same legal entity as HBL. HBLSL is therefore subject to any regulatory constraints on HBL remitting money from Pakistan into Sri Lanka.
Our assessment also takes into consideration HBLSL’s strong operational integration with HBL and the small size of the branch, which made up 0.3% of HBL’s total assets at end-1Q24.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
HBLSL’s National Rating would be downgraded if there are material changes to Fitch’s expectation of support from HBL, such as a change in the branch’s legal status or the branch being divested.
A downgrade of Pakistan’s ‘CCC+’ Long-Term Issuer Default Rating, or weakening ability of the parent relative to the Pakistan sovereign, or any other developments that affect the branch’s ability to service its obligations, could also lead to a multiple-notch downgrade of HBLSL’s National Rating.
A change in the relativities among the credit profiles of issuers based in Sri Lanka could also prompt a downward revision in the rating.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
HBLSL’s National Rating could be upgraded should HBL’s credit profile improve, reflecting a greater ability to provide extraordinary support to the Sri Lankan branch.
This assumes our expectation of the parent’s 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 rating is linked to HBL’s credit profile, based on its legal status as a branch of HBL.
Additional information is available on www.fitchratings.com
(Colombo/Aug13/2024)