Fitch Ratings has downgraded Housing Development Finance Corporation Bank of Sri Lanka's (HDFC Bank) National Long-Term Rating to 'BBB-(lka)' from 'BBB(lka)'. HDFC Bank's senior secured and senior unsecured debentures have also been downgraded to 'BBB-(lka)' from 'BBB(lka)'.
Releasing a statement Fitch said the one-notch downgrade reflects Fitch's assessment of the weakening of support from the Sri Lanka sovereign (B+/Stable) to HDFC Bank. This is after the state failed to provide capital to the bank in a timely manner for it to meet the minimum Rs. 5 billion regulatory capital requirement by January 1, 2018. However, “Fitch believes that it is still likely that the authorities would provide adequate support to meet the shortfall within an extended deadline” the release further added.
According to the assessment of the bank's standalone profile, Fitch said the Bank is weak compared with better-rated peers.
It also said that Fitch will downgrade the bank's rating if the sovereign does not raise HDFC Bank's capital as this would indicate that sovereign support cannot be relied upon. Should this occur, Fitch is likely to downgrade the bank to the 'BB' category on the National Rating scale; the extent of the downgrade would depend on whether the bank's intrinsic strength continues to weaken.
“Furthermore, Fitch may also downgrade HDFC Bank's ratings if there is a change in our expectation of state support due to a weakening of the bank's linkages with the state, through a dilution of the state's majority ownership or a revision of Fitch's view of the bank's policy role” it said.
However, it also went on to say that HDFC Bank's rating could be affirmed if the state were to provide the additional capital required in the next six months.