ECONOMYNEXT – A proposed buy of the enterprise of Financial institution Alfalah unit in Bangladesh (BAFL) is unlikely to have an effect on an A(lka)/Secure) score of Sri Lanka’s Hatton Nationwide Financial institution, Fitch Scores stated.
“We imagine the acquisition, if it proceeds, would have solely a modest influence on HNB’s capital,” the score company stated.
“We see restricted draw back stress on HNB’s capitalisation metrics ought to the acquisition proceed.”
At end-2023, BAFL had property totalling almost 80 billion rupees and fairness of 15.5 billion rupees.
It was about 5 % of HNB’s property and eight % of its fairness on the financial institution degree, indicating that the doable acquisition is small relative to HNB’s total dimension.
“We estimate the acquisition would result in lower than a 1pp drop in HNB’s capital ratios on account of a rise in risk-weighted property,” Fitch stated.
If the Taka depreciates, the chance could be manageable given its capital buffers. HNB’s frequent fairness Tier 1 capital ratio stood at 16.2 %.
The complete assertion is reproduced beneath:
HNB’s Ranking Unaffected by Proposed Acquisition of Alfalah’s Bangladesh Enterprise
Fitch Scores-Colombo-30 August 2024: Hatton Nationwide Financial institution PLC’s (HNB; A(lka)/Secure) potential acquisition of Financial institution Alfalah Restricted’s (BAFL) Bangladesh operations is unlikely to have an effect on the Sri Lankan financial institution’s scores, says Fitch Scores. We imagine the acquisition, if it proceeds, would have solely a modest influence on HNB’s capital.
HNB introduced on 26 August 2024 that it has made a non-binding provide on the acquisition. That is after Financial institution Asia Restricted (Bangladesh) made an analogous non-binding provide in April 2024. Each presents have been accepted in precept, topic to compliance with all relevant legal guidelines and rules. The subsequent step is central financial institution approval for graduation of the due diligence course of.
We see restricted draw back stress on HNB’s capitalisation metrics ought to the acquisition proceed. At end-2023, BAFL had property totalling almost LKR80 billion and fairness amounting to LKR15.5 billion. That is about 5% of HNB’s property and eight% of its fairness on the financial institution degree, indicating that the doable acquisition is small relative to HNB’s total dimension. We estimate the acquisition would result in lower than a 1pp drop in HNB’s capital ratios on account of a rise in risk-weighted property. The financial institution’s capital may very well be uncovered to exchange-rate dangers, notably within the occasion the taka depreciates towards the Sri Lankan rupee, however we imagine this could be manageable given its capital buffers. HNB’s frequent fairness Tier 1 capital ratio stood at 16.2% at end-1H24 on the financial institution degree, together with 1H24 revenue, the best amongst Sri Lanka’s home systemically essential banks.
The proposed acquisition offers HNB an entry into Bangladesh (B+/Secure), a a lot bigger financial system than Sri Lanka. Nevertheless, we don’t anticipate this publicity to be sufficiently materials within the medium time period to mitigate the dangers related to the financial institution’s dominant publicity to Sri Lanka. As such, we anticipate its standalone credit score profile evaluation to be largely linked to the home working setting, regardless of the chance diversification, till its operations in Bangladesh increase meaningfully. The financial institution at present has modest abroad publicity by way of its lending to entities primarily based outdoors the nation.
We anticipate the influence on HNB’s different monetary profile-related elements to be restricted, ought to the acquisition happen, because the Bangladesh operations are more likely to account for under a small share of HNB’s stability sheet. BAFL’s Bangladesh operations stay sturdy, with low default charges on account of its deal with company purchasers. It’s well-capitalised, with a Tier 1 ratio of over 70% and an working revenue/risk-weighted asset ratio of 9%.
Among the many Sri Lankan banks, Business Financial institution of Ceylon PLC (A(lka)/Secure) already has a presence in Bangladesh following its acquisition of Credit score Agricole Indosuez in 2003. The financial institution’s Bangladesh operations now account for 15.5% of its property (2005: 8%) however the contribution to profitability has been greater prior to now two years on account of weak profitability in Sri Lanka.
BAFL, owned and operated by the Abu Dhabi Group, is a multinational financial institution with operations in Pakistan, Afghanistan, Bangladesh, Bahrain and the United Arab Emirates. BAFL is among the largest banks in Pakistan, however its operations in Bangladesh are a lot smaller, accounting for simply 2% of its complete property.
