ECONOMYNEXT – Fitch Scores 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 Scores’ expectation of extraordinary help from father or mother, 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 stated.
The ranking additionally elements in HNB Securities’ constructive contribution to the father or mother’s profitability, and HNB’s oversight of it by way of board illustration and periodic reporting.
Fitch Assigns HNB Securities First-Time ‘A(lka)’ Ranking; Outlook Secure
Fitch Scores 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 finally 100% owned by Hatton Nationwide Financial institution PLC (HNB, AA-(lka)/Secure) – the fourth-largest business financial institution by belongings in Sri Lanka – by way of HNB Funding Financial institution (Pvt) Ltd (HNBIB). HNBS, as one of many 10 energetic main sellers within the nation, is authorised to take part straight in authorities securities auctions. Additionally it is one of many 5 main sellers working as standalone authorized entities, whereas the remaining 5 are main dealing divisions inside banks.
For extra data on HNB, see our ranking motion commentary “Fitch Upgrades 10 Sri Lankan Banks’ Nationwide Scores and Affirms 5 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 help 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 father or mother’s profitability, and HNB’s oversight of HNBS by way of board illustration and periodic reporting.
Average Reputational Ties: HNBIB, previously Acuity Companions (Pvt) Ltd – a three way partnership between HNB and DFCC Financial institution PLC (A(lka)) – turned 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 stated, we imagine the reputational danger 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 on account of HNBS’s lack of public deposit operations.
Strategic Worth: We imagine HNBS’s main dealing operations have a powerful strategic alignment with HNB’s monetary companies franchise. HNB, along with different subsidiaries throughout the group, participates in authorities securities auctions solely by way of HNBS. HNB additionally plans to additional combine HNBS into the financial institution’s broader wealth administration enterprise by way of cross-selling alternatives.
Accretive to Group Profitability: HNBS is the biggest 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 larger than the father or mother financial institution’s standalone pretax ROAA of two.4%.
Group Oversight: HNBS retains vital administration independence in its day-to-day operations, however it’s topic to HNB’s oversight by way of 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 danger and audit board committees on a quarterly foundation.
Guardian’s Potential to Help: We imagine HNB possesses robust capability to offer extraordinary help to HNBS if wanted, given the subsidiary’s manageable measurement relative to the financial institution. HNBS accounted for two.8% of HNB’s complete standalone belongings and three.3% of its fairness at end-2024. The regulator has barred business banks from offering unsecured funding amenities to their subsidiaries since mid-June 2025. Nevertheless, HNB can nonetheless prolong funding backed by eligible collateral or inject fairness capital, which supplies enough flexibility for monetary help, if wanted.
Average 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 danger. 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 capability and willingness to offer well timed extraordinary help. Developments that might result in destructive ranking motion embody:
– Weakening in HNB’s capability to offer help, doubtlessly on account of a major improve in HNBS’s measurement or danger publicity relative to the father or mother’s steadiness sheet, though the subsidiary is comparatively small presently
– A big decline in HNB’s shareholding with a cloth discount in HNBS’s strategic alignment with HNB that signifies HNB’s declining propensity to help HNBS on a well timed foundation
– Sustained poor efficiency and weak profitability for HNBS and/or a cloth discount in HNBS’s strategic worth throughout the group that reduces HNB’s propensity to offer help
– A downgrade of HNB’s ranking would end in a downgrade of HNBS’s ranking by the identical magnitude, supplied different shareholder help 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 help elements stay intact. Considerably elevated strategic integration with HNB, equivalent to materially larger cross-selling or a larger contribution to the father or mother’s absolute consolidated revenue, may additionally strengthen the father or mother’s help propensity.
Any constructive motion would additionally have 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).
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