Moody's Investors Service yesterday extended its review for downgrade on Bank of Ceylon's (BOC), Hatton National Bank PLC's (HNB) and Sampath Bank PLC's (Sampath) long-term local currency deposit and foreign currency issuer ratings of B2.

The extension of the review for downgrade on the banks' ratings follows the review for downgrade that remains in place on Sri Lanka's B2 sovereign rating. Moody's believes that there is a high level of dependency between the creditworthiness of the banks and that of the sovereign, given that the banks operate mainly within the country and hold significant amounts of sovereign debt. Furthermore, the government's ability to support the banks in times of need is a key input to Moody's assessment of the banks' ratings.

Moody's had earlier initiated the review for downgrade on the banks' ratings following its placement of the sovereign rating on review for downgrade.

Given the review for downgrade, the banks' Baseline Credit Assessments (BCAs) and long-term ratings are unlikely to be upgraded during the review period. Nevertheless, Moody's could confirm the ratings if Sri Lanka's sovereign rating is confirmed.

A downgrade of the sovereign rating could lead to a downgrade of the banks' BCAs and long-term ratings. Moody's could also downgrade the banks' BCAs if there is a material deterioration in asset quality. A significant decline in capitalization could also exert downward pressure on the banks' BCAs.

Bank of Ceylon, headquartered in Colombo, reported total assets of LKR2,603 billion at 31 March 2020.

Hatton National Bank PLC, headquartered in Colombo, reported total assets of LKR1,219 billion at 31 March 2020.

Sampath Bank PLC, headquartered in Colombo, reported total assets of LKR1,028 billion at 31 March 2020.