ECONOMYNEXT – Fitch Ratings has assigned an ‘A-(lka)’ rating to Seylan Bank’s proposed 15 billion Sri Lanka rupees debentures.
“This reflects Fitch’s baseline notching for loss severity for this type of debt and our expectation of poor recoveries,” the ratings agency said.
The debentures were originally expected to have maturities of 5, 7 and 10 years, but now carry maturities of 5 and 10 years.
The statement is reproduced below:
Fitch Rates Seylan Bank’s Basel III Subordinated Debt Final ‘A-(lka)’
Fitch Ratings – Colombo – 25 Jun 2025: Fitch Ratings has assigned Seylan Bank PLC’s (A+(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 7 May 2025 and follows the receipt of documents conforming to information already received.
Key Rating Drivers
The proposed debentures, originally expected to have maturities of five, seven and 10 years, now carry maturities of five and 10 years and are to be listed on the Colombo Stock Exchange. The bank plans to use the proceeds to strengthen its Tier 2 capital, support the expansion of its loan book and reduce maturity mismatches in the balance sheet.
The proposed debentures will qualify as Basel III-compliant regulatory Tier 2 capital. The debentures include a non-viability clause whereby they convert to ordinary voting shares subject to the occurrence of a trigger event, as determined by the Governing Board of Sri Lanka.
Fitch rates the proposed notes two notches below the bank’s National Long-Term Rating. This reflects Fitch’s baseline notching for loss severity for this type of debt and our expectation of poor recoveries. There is no additional notching for non-performance risk, as the proposed notes do not incorporate going-concern loss-absorption features.
Seylan’s National Long-Term Rating is used as the anchor rating for the instrument, because the rating reflects the bank’s standalone financial strength and best indicates the risk of the bank becoming non-viable.
Fitch upgraded Seylan’s National Long-Term Rating on 21 January 2025; 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.
(Colombo/Jun26/2025)