Fitch Ratings has assigned Nations Trust Bank PLC's (NTB, A(lka)/Stable) Sri Lanka rupee-denominated proposed Basel III-compliant subordinated unsecured debentures an expected National Long-Term Rating of 'A-(lka)(EXP)'.

The debentures, totalling LKR3.5 billion, will have maturities of five years and carry fixed coupons. The debentures qualify as regulatory Tier 2 capital for the bank and include a non-viability clause. The bank plans to use the proceeds to support its loan book expansion and to strengthen its Tier 2 capital base. The debentures are to be listed on the Colombo Stock Exchange.

The final rating is subject to the receipt of final documentation conforming to information already received.

KEY RATING DRIVERS
Fitch rates the proposed Basel III Tier 2 notes one notch below the bank's National Long-Term Rating of 'A(lka)'. This reflects the notes' higher loss-severity risks compared with senior unsecured instruments due to the notes' subordinated status.

The notes include a non-viability trigger that would convert the notes to equity upon the occurrence of a trigger event, as determined by the Monetary Board of Sri Lanka.

NTB's National Long-Term Rating is used as the anchor rating because the rating reflects the bank's standalone financial strength. Fitch believes that the bank's standalone credit profile best indicates the risk of becoming non-viable.

Fitch has not differentiated the notching on the proposed notes from the notching on NTB's legacy Tier 2 notes as it is assumed that the authorities would step in late, moving the point of non-viability close to liquidation.

Fitch has not applied additional notching to the notes for non-performance risk according to Fitch's criteria, as the notes have no going-concern loss-absorption features.

NTB's ratings reflect its declining capitalisation, modest franchise and high product concentration.

RATING SENSITIVITIES
The rating of the notes would move in tandem with NTB's National Long-Term Rating.