ECONOMYNEXT – Fitch Ratings said it has confirmed Citibank N.A. Colombo Branch’s (CitiSL) National Long-Term Rating at ‘AAA(lka)’ with a stable Outlook.
“CitiSL’s rating reflects Fitch’s expectation of a high probability of support from the head office Citibank N.A. (Citi, A+/Stable/a), if required,” the rating agency said.
Fitch said, that Citi’s Long-Term Issuer Default Rating (IDR) is significantly higher than Sri Lanka’s Long-Term Local- Currency IDR of ‘CC’, and the branch’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.”
The full rating statement follows:
Fitch Affirms Citibank N.A. – Colombo Branch at ‘AAA(lka)’; Outlook Stable
Fitch Ratings – Colombo – 29 Mar 2023: 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
Parental Support: CitiSL’s rating reflects Fitch’s expectation of a high probability of support from the head office Citibank N.A. (Citi, A+/Stable/a), if required. This would be subject to any regulatory constraints on remitting money into Sri Lanka, given CitiSL’s status as a branch of Citi – being part of the same legal entity. Fitch’s opinion of a high probability of support also stems from the alignment of CitiSL’s objectives and strong operational integration with Citigroup. The branch, at only approximately 0.01% of Citibank’s total assets, implies that support would not be material to Citi.
Citi’s Long-Term Issuer Default Rating (IDR) is significantly higher than Sri Lanka’s Long-Term Local- Currency IDR of ‘CC’, and the branch’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.
Liquidity Buffers: CitiSL’s liquidity coverage ratio of 624% at end-2022 is complemented by access to funding from Citi, if required. CitiSL has limited its exposure to government securities, with the majority of the branch’s excess liquidity held with the central bank and in the form of placements with banks. These balances and cash accounted for about 63% of its total assets at end-December 2022, covering nearly 96% of its deposit obligations.
Capital Ratios Above Peers: CitiSL’s CET 1 capital ratio of 27% at end-2022 (excluding 2022 profit) was well above local peers, supported partly in recent years by restrictions on repatriation of profit and the bank’s shift towards assets with low risk weights, like cash and balances with the central bank and other banks. We expect CitiSL to maintain CET1 ratios above 20% over the rating horizon.
Asset-Quality Risks Manageable: CitiSL’s operating profit/risk-weighted Assets (OP/RWA) improved to 12.4% in 2022 from 5.0% in 2021 on wider interest margins, driven by higher yields on loans and treasury bills and a sharp rise in low-cost deposits. Wider margins more than offset pressures from higher credit costs due to a rise in Stage 2 exposures.
CitiSL has maintained zero non-performing loans since 2009 despite the challenging operating environment, which supports our view that asset-quality risks are manageable – given the bank’s selective exposures limited to top-tier local and multinational corporates and financial institutions.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
CitiSL’s rating would most likely be downgraded on material changes to Fitch’s expectation of support from Citibank, N.A., such as a change in the branch’s legal status or the branch being divested. A further 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.
