ECONOMYNEXT – Fitch Rankings has positioned Sri Lanka’s Housing Growth Finance Company Financial institution’s nationwide score of ‘BB+(lka)’ and State Mortgage & Funding Financial institution’s (SMIB) nationwide score of ‘BB(lka)’ on Score Watch Constructive.
This follows the federal government’s announcement final week that the cupboard of ministers accepted the proposal to switch all of the state-owned shares of HDFC and SMIB to Financial institution of Ceylon and Individuals’s Financial institution respectively.
“The RWP displays Fitch’s view that the acquisitions of HDFC and SMIB by BOC and PB, respectively, would end in HDFC and SMIB benefitting from a really excessive chance of assist from their new house owners,” Fitch Rankings mentioned.
The Fitch assertion is reproduced beneath:
Fitch Locations HDFC’s and SMIB’s Nationwide Rankings on Score Watch Constructive on Proposed Acquisition
Fitch Rankings – Colombo – 21 Nov 2025: Fitch Rankings has positioned Housing Growth Finance Company Financial institution of Sri Lanka’s (HDFC) Nationwide Score of ‘BB+(lka)’ and State Mortgage & Funding Financial institution’s (SMIB) Nationwide Score of ‘BB(lka)’ on Score Watch Constructive (RWP). HDFC’s score was beforehand on a Destructive Outlook.
Key Score Drivers
Acquisition on the Playing cards: The score motion follows the announcement by the federal government on 11 November 2025 that the cupboard of ministers granted approval for the proposal to switch all of the state-owned shares of HDFC and SMIB to Financial institution of Ceylon (BOC; CCC+/AA-(lka)/Secure) and Individuals’s Financial institution (Sri Lanka) (PB; AA-(lka)/Secure), respectively. The modalities and determination of the meant acquisitions usually are not but recognized.
The RWP displays Fitch’s view that the acquisitions of HDFC and SMIB by BOC and PB, respectively, would end in HDFC and SMIB benefitting from a really excessive chance of assist from their new house owners. Fitch will mirror this chance of assist by way of support-driven nationwide scores upon the completion of every transaction. Fitch expects to resolve the RWP upon closing of the transaction, and the decision is more likely to take longer than Fitch’s regular Score Watch decision horizon of six months.
Regulatory Restrictions at HDFC: We revised our Outlook on HDFC’s Nationwide Score to Destructive from Secure on 15 August 2025 to mirror potential deterioration in its standalone credit score profile relative to equally rated friends, attributable to regulatory restrictions on deposit mobilisation and chosen lending merchandise. These restrictions have dampened HDFC’s aggressive place within the housing mortgage phase, which is pushed predominantly by Staff’ Provident Fund (EPF)-backed loans, and its mortgage and deposit market share.
Capital Shortfall at SMIB: The financial institution’s capital place stays beneath the regulatory minimal capital requirement of LKR7.5 billion. The shortfall is estimated at round LKR2 billion-3 billion primarily based on the June 2025 financials. SMIB is worthwhile, whereas we consider that earnings retention alone will probably be inadequate to satisfy this shortfall within the close to to medium time period.
Fitch reviewed SMIB’s scores with no score motion on 8 September 2025. Please consult with the Score Motion Commentary – Fitch Assigns State Mortgage & Funding Financial institution a First-Time ‘BB(lka)’ Score; Outlook Secure – printed on 28 March 2025 for the Key Score Drivers and Sensitivities
Score Sensitivities
Elements that Might, Individually or Collectively, Result in Destructive Score Motion/Downgrade
We might take away the scores from RWP if the acquisition doesn’t proceed (which isn’t our base case). In such an occasion, we might be more likely to affirm SMIB’s scores on the present standalone-driven score ranges.
For HDFC, we could affirm the scores on the present standalone-driven score ranges and reassign the Destructive Outlook on the Nationwide Score if regulatory restrictions stay in pressure which proceed to pose dangers to its enterprise mannequin and general credit score profile.
Nevertheless, Fitch would additionally take into account a downgrade in HDFC’s Nationwide Score on the time of eradicating the RWP, if HDFC experiences materials deterioration in its franchise attributable to a sustained lack of competitiveness within the housing-loan phase, significantly in EPF-backed loans. Destructive score motion might additionally stem from persistent deterioration in HDFC’s monetary profile, notably if capital ranges fall beneath the regulatory minimal of LKR7.5 billion and stays unaddressed for an prolonged interval. As well as, widening asset-liability mismatches arising from the financial institution’s incapability to entry funding might set off a downgrade.
Elements that Might, Individually or Collectively, Result in Constructive Score Motion/Improve
We might be more likely to take away the RWP and improve HDFC’s and SMIB’s Nationwide Rankings, which might then be primarily based on Fitch’s view of the energy of extraordinary assist from their new shareholders, following completion of the transaction. This might result in a multiple-notch improve for HDFC and SMIB, given the shareholder energy. That mentioned, Fitch can be more likely to preserve a distinction of a number of notches between the scores of acquirers and the acquirees as a result of latters’ restricted strategic significance to the brand new house owners.
SMIB has a 1.78% fairness stake in Fitch Rankings Lanka Ltd. No shareholder apart from Fitch, Inc. is concerned within the day-to-day score operations of, or credit score critiques undertaken by, Fitch Rankings Lanka.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of knowledge used within the evaluation are described within the Relevant Standards.
(Colombo/Nov21/2025)
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