Fitch Ratings has assigned Seylan Bank PLC's (A-(lka)/Stable) proposed Sri Lankan rupee-denominated, Basel III-compliant subordinated debentures of up to LKR10 billion an expected National Long-Term Rating of 'BBB(EXP)(lka)'.

The proposed debentures, which will have maturities of five and seven years, will 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 bank expects the proposed debentures to 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 Monetary Board of Sri Lanka.

The final rating is subject to the receipt of final documentation conforming to information already received.

Key Rating Drivers

Fitch rates the proposed Basel III Tier 2 notes two notches below the bank's National Long-Term Rating to reflect Fitch's baseline notching for loss severity for this type of debt and 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 affirmed Seylan's National Long-Term Rating, removed it from Rating Watch Negative and assigned a Stable Outlook on 5 October 2023; see Fitch Affirms Ratings on 15 Sri Lankan Banks; Removes Watch Negative; CBL on Negative Outlook

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Seylan's subordinated debt would be downgraded if the bank's National Long-Term Rating is downgraded.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Seylan's subordinated debt would be upgraded if the bank's National Long-Term Rating is upgraded.

Date of Relevant Committee

04 October 2023

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.

RATING ACTIONS

Entity / Debt

Rating

Seylan Bank PLC

subordinated

Natl LT

BBB(EXP)(lka)

Expected Rating

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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