Rating Actions
- Fitch Ratings has upgraded the National Long-Term Ratings of three bank-supported non-bank financial institutions (NBFIs) after upgrading their parent banks’ ratings.
- People’s Leasing and Finance PLC (PLC) was upgraded to ‘AA-(lka)’ from ‘A(lka)’; Outlook Stable.
- Merchant Bank of Sri Lanka & Finance PLC (MBSL) was upgraded to ‘AA-(lka)’ from ‘A(lka)’; Outlook Stable.
- CBC Finance PLC (CBCF) was upgraded to ‘A+(lka)’ from ‘A(lka)’; Outlook Stable.
- The upgrades follow those of the parent banks: People’s Bank (AA+(lka)/Stable), Bank of Ceylon (AA+(lka)/Stable) and Commercial Bank of Ceylon PLC (AA(lka)/Stable), respectively.
- They reflect Fitch’s view of the parents’ improved ability to support their subsidiaries, as set out in its 30 October 2026 action on eight Sri Lankan banks’ national ratings.
- National scale ratings rank issuers within a single market to help local investors differentiate risk. The ‘(lka)’ identifier marks the Sri Lankan scale, which is not comparable with Fitch’s international scales or other countries’ national scales.
Key Rating Drivers
- The ratings are driven by Fitch’s expectation of extraordinary support from the parent banks, based on their credit profiles and their ability and propensity to support.
- Fitch believes the parents would provide support if needed, given high ownership stakes, shared branding in some cases and management oversight, which raise reputational risk if a subsidiary were to fail.
- Ownership stakes: People’s Bank holds 75% of PLC, Bank of Ceylon holds 84.4% of MBSL and Commercial Bank holds 100% of CBCF.
- PLC:Â Its longstanding and largely successful role as the People’s Bank group’s leasing arm strengthens the parent’s propensity to support. This is balanced against PLC’s significant balance-sheet size relative to its parent.
- MBSL:Â It plays a more limited role in the BOC group. High growth and variable profitability have pressured regulatory capitalisation and leverage, which may weigh on the parent’s propensity to support. BOC has supported it in the past, and support is expected to remain available for growth and regulatory capital needs in the near to medium term.
- CBCF:Â Its modest group role and variable performance may limit the parent’s propensity to support, although recent earnings and asset quality have improved.
Rating Sensitivities
- Downgrade:Â The ratings are sensitive to changes in the parents’ credit profiles and in Fitch’s view of their ability and propensity to provide timely support. Negative action on a parent’s National Rating could lead to similar action on its subsidiary.
- Sustained poor performance or weakened linkages with the parent could reduce its motivation to support.
- A significant rise in a subsidiary’s balance sheet relative to its parent could constrain the parent’s capacity to support and may lead to a downgrade.
- Upgrade:Â Positive action could result from improved parent bank credit profiles or a larger role and contribution by the subsidiaries within their groups.
Debt Instrument Ratings
- The outstanding and proposed rupee-denominated subordinated debt of PLC, MBSL and CBCF is rated two notches below each entity’s National Long-Term Rating.
- Fitch applied its Bank Rating Criteria, as it considers the prudential capital framework for Sri Lankan finance companies closer to that of banks.
- The ratings reflect baseline notching for loss severity, given expected poor recoveries in the event of default.
- There is no additional notching for non-performance risk, as the debentures have no going-concern loss-absorption features.
- Any action on the entities’ National Long-Term Ratings will result in similar action on their subordinated debt ratings.
For Information purpose only, not a buy or sell recommendation.
