ECONOMYNEXT – Fitch Rankings has awarded Sri Lanka-based HNB Securities Restricted its inaugural Nationwide Lengthy-Time period Ranking of ‘A(lka)’, accompanied by a Secure Outlook.
The ranking displays the Fitch Rankings’ expectation of extraordinary assist from mother or father, Hatton Nationwide Financial institution.
“This evaluation is underpinned by HNBS’s synergistic function as the first dealing arm of HNB, together with for its associates and wealth administration shoppers,” Fitch mentioned.
The ranking additionally elements in HNB Securities’ constructive contribution to the mother or father’s profitability, and HNB’s oversight of it by board illustration and periodic reporting.
Fitch Assigns HNB Securities First-Time ‘A(lka)’ Ranking; Outlook Secure
Fitch Rankings has assigned Sri Lanka-based HNB Securities Restricted (HNBS) a first-time Nationwide Lengthy-Time period Ranking of ‘A(lka)’ with a Secure Outlook.
HNBS is in the end 100% owned by Hatton Nationwide Financial institution PLC (HNB, AA-(lka)/Secure) – the fourth-largest industrial financial institution by belongings in Sri Lanka – by HNB Funding Financial institution (Pvt) Ltd (HNBIB). HNBS, as one of many 10 energetic main sellers within the nation, is authorised to take part immediately in authorities securities auctions. It’s also one of many 5 main sellers working as standalone authorized entities, whereas the remaining 5 are main dealing divisions inside banks.
For extra info on HNB, see our ranking motion commentary “Fitch Upgrades 10 Sri Lankan Banks’ National Ratings and Affirms Five after Scale Recalibration“, dated 21 January 2025.
Key Ranking Drivers
Help-Pushed Ranking: HNBS’s Nationwide Lengthy-Time period Ranking displays our expectation of extraordinary assist from HNB, if required. This evaluation is underpinned by HNBS’s synergistic function as the first dealing arm of HNB, together with for its associates and wealth administration shoppers. The ranking additionally elements in HNBS’s shared branding with HNB, its constructive contribution to the mother or father’s profitability, and HNB’s oversight of HNBS by board illustration and periodic reporting.
Reasonable Reputational Ties: HNBIB, previously Acuity Companions (Pvt) Ltd – a three way partnership between HNB and DFCC Financial institution PLC (A(lka)) – grew to become an entirely owned subsidiary of HNB following HNB’s acquisition of DFCC’s shareholding in HNBIB in January 2025. This transaction was adopted by the alignment of the company and model names of HNBIB and its subsidiaries, together with HNBS, with HNB. That mentioned, we imagine the reputational threat to HNB within the occasion of an HNBS default is extra containable than that for bank-supported finance and leasing corporations rated by Fitch in Sri Lanka as a consequence of HNBS’s lack of public deposit operations.
Strategic Worth: We imagine HNBS’s main dealing operations have a robust strategic alignment with HNB’s monetary providers franchise. HNB, along with different subsidiaries inside the group, participates in authorities securities auctions solely by HNBS. HNB additionally plans to additional combine HNBS into the financial institution’s broader wealth administration enterprise by cross-selling alternatives.
Accretive to Group Profitability: HNBS is the most important revenue contributor to HNB among the many financial institution’s subsidiaries and associates, accounting for 3.8% of HNB’s consolidated pretax revenue over the past 5 years (2024: 4.0%) on a professional forma totally owned foundation. HNBS’s common pretax return on common belongings (ROAA) of 5.6% over 2020-2024 was considerably increased than the mother or father financial institution’s standalone pretax ROAA of two.4%.
Group Oversight: HNBS retains important administration independence in its day-to-day operations, however it’s topic to HNB’s oversight by board illustration and periodic reporting. HNB’s CEO and head of treasury and markets are presently two of HNBS’s three board members. HNBS can be required to report back to HNB’s threat and audit board committees on a quarterly foundation.
Dad or mum’s Capacity to Help: We imagine HNB possesses sturdy skill to offer extraordinary assist to HNBS if wanted, given the subsidiary’s manageable measurement relative to the financial institution. HNBS accounted for two.8% of HNB’s whole standalone belongings and three.3% of its fairness at end-2024. The regulator has barred industrial banks from offering unsecured funding services to their subsidiaries since mid-June 2025. Nevertheless, HNB can nonetheless prolong funding backed by eligible collateral or inject fairness capital, which supplies satisfactory flexibility for monetary assist, if wanted.
Reasonable Standalone Profile: HNBS’s standalone credit score profile doesn’t drive its ranking and is assessed to be weaker than its support-driven ranking. This displays HNBS’s extra risky, market-focused enterprise mannequin and its concentrated repo funding pool. HNBS’s giant unhedged buying and selling positions in authorities securities additionally heighten rate of interest threat. We imagine these elements are balanced by its comparatively liquid belongings primarily composed of presidency securities.
RATING SENSITIVITIES
Elements that May, Individually or Collectively, Result in Unfavorable Ranking Motion/Downgrade
HNBS’s ranking is delicate to modifications in HNB’s credit score profile and our evaluation of HNB’s skill and willingness to offer well timed extraordinary assist. Developments that might result in unfavourable ranking motion embody:
– Weakening in HNB’s skill to offer assist, doubtlessly as a consequence of a big enhance in HNBS’s measurement or threat publicity relative to the mother or father’s stability sheet, though the subsidiary is comparatively small presently
– A major decline in HNB’s shareholding with a fabric discount in HNBS’s strategic alignment with HNB that signifies HNB’s declining propensity to assist HNBS on a well timed foundation
– Sustained poor efficiency and weak profitability for HNBS and/or a fabric discount in HNBS’s strategic worth inside the group that reduces HNB’s propensity to offer assist
– A downgrade of HNB’s ranking would end in a downgrade of HNBS’s ranking by the identical magnitude, supplied different shareholder assist elements stay unchanged
Elements that May, Individually or Collectively, Result in Constructive Ranking Motion/Improve
An improve of HNB’s ranking may result in an improve on HNBS’s ranking by the identical magnitude, supplied different shareholder assist elements stay intact. Considerably elevated strategic integration with HNB, comparable to materially increased cross-selling or a higher contribution to the mother or father’s absolute consolidated revenue, may additionally strengthen the mother or father’s assist propensity.
Any constructive motion would additionally keep in mind relativities with different support-driven entities on the Sri Lankan nationwide scale, together with HNBS’s deposit-taking sister firm, HNB Finance PLC (A(lka)/Secure).
