Fitch Ratings has assigned an expected rating of ‘BBB+(EXP)(lka)’ to the proposed 10 billion rupee Basel III subordinated debentures from Sri Lanka’s DFCC Bank. This rating is anchored on the bank’s National Long-Term Rating, which effectively reflects its independent financial robustness and the risk associated with its potential non-viability, according to the agency.
The subordinated debentures are set to mature in five years and will be available on the Colombo Stock Exchange. The bank intends to utilize the funds generated from this issuance to bolster its Tier 2 capital and facilitate growth in its balance sheet.
These debentures are expected to meet the criteria for Basel III-compliant regulatory Tier 2 capital. They have a provision that will convert them into ordinary voting shares if a specific trigger event occurs, as determined by the Central Bank of Sri Lanka’s Governing Board.
The final rating for these debentures will be confirmed following the submission of final documentation that aligns with the previously provided information.
In terms of key rating drivers, DFCC’s Sri Lankan rupee-denominated subordinated debt is rated two notches below the bank’s National Long-Term Rating. This assessment is based on baseline notching for loss severity associated with this type of debt and the anticipated low recovery rates. There is no additional notching for non-performance risk, as the debentures do not include any loss-absorption features related to going concern.
Fitch conducted a review of DFCC’s ratings without any changes on September 8, 2025. For insights regarding the key rating drivers and sensitivities, refer to the commentary titled “Fitch Upgrades 10 Sri Lankan Banks’ National Ratings and Affirms Five after Scale Recalibration,” published on January 21, 2025.
Rating sensitivities include factors that could lead to negative actions or downgrades. A downgrade in the bank’s National Long-Term Rating would consequently result in a downgrade of the expected rating. Conversely, an enhancement of the bank’s National Long-Term Rating could lead to an upgrade of the expected rating.
(Colombo/July 20, 2026)
