Fitch Ratings has downgraded the National Long-Term Ratings of 10 Sri Lankan banks following the recent sovereign downgrade and recalibration of the agency’s Sri Lankan national rating scale.
The recalibration is to reflect changes in the relative credit worthiness among Sri Lankan issuers following Fitch’s downgrade of Sri Lanka’s Long-Term Local Currency Issuer Default Rating (IDR) to ‘CC’ from ‘CCC’/Under Criteria Observation on 1 December 2022.
Fitch typically does not assign Outlooks or apply modifiers to sovereigns with a rating of ‘CCC+’ or below.
National scale ratings are a risk ranking of issuers in a particular market designed to help local investors differentiate risk. Sri Lanka’s national scale ratings are denoted by the unique identifier ‘(lka)’.
Fitch adds this identifier to reflect the unique nature of the Sri Lankan national scale. National scales are not comparable with Fitch’s international rating scales or with other countries’ national rating scales.
The National Ratings of the Sri Lankan banks consider their creditworthiness relative to other issuers in the country.
The downgrades of the National Ratings of the 10 banks are driven by the downgrade of the sovereign’s Long-Term Local-Currency IDR and the recalibration of the national rating scale while also reflecting the relative creditworthiness among Sri Lankan issuers.
A probable default on the sovereign’s local-currency obligations increases the risk that authorities will impose restrictions on banks servicing their local-currency obligations. That said, we believe this risk is lower than non-payment by the sovereign.
The downgrade of CBL’s rating incorporates the additional consideration of parent CT Holdings PLC’s (CTH) limited ability to provide extraordinary support. This is reflected in CBL’s large size relative to the group and the bank’s weak standalone credit profile.
The Inland Revenue Commissioner General pointed out during the discussion that the amount of tax collected in the year 2022 is Rs. 860 billion and the amount of tax expected to be collected for the year 2023 is Rs. 1,667 billion in amount.
Accordingly, compared to last year, it is expected to receive more tax money amounting to 922 billion rupees this year, he said.
As Sri Lanka closes in on a $2.9 billion loan deal from the International Monetary Fund and its economy starts to stabilize, India is seeking to land ambitious long-term investments worth over $1 billion, including in the energy sector, with an eye on countering the influence of regional rival China.
Sri Lanka aims at increasing tax revenue by 69 percent to Rs.3,130 billion this year from Rs.1,852 billion in 2022 while bringing down the budget deficit to 7.9 percent in 2023 from revised 9.8 percent in 2022.
The high tax revenue target comes as millions of Sri Lankans face the impacts of the ongoing economic crisis – 66 percent inflation, job losses, and shrinking disposable income.
The largest amount which is Rs. 603 billion as expected tax revenue in 2023 is expected to receive from corporate income tax. The local revenue officials also indicated that an income of 553 billion rupees is expected from the value-added tax (VAT).
