Fitch Ratings has assigned an expected ‘BBB+(EXP)(lka)’ rating to National Development Bank’s (NDB) proposed green, social, and sustainable bonds, valued at 16 billion Sri Lankan rupees.
According to Fitch, the rating reflects the agency’s standard assessment for loss severity on this type of subordinated debt and its expectations of poor recoveries. The bonds feature a non-viability clause, meaning they will convert to ordinary voting shares if a specified trigger event occurs.
The proposed bonds, which are compliant with Basel III regulations, are unsecured and subordinated. They will mature in five years and are set to be listed on the Colombo Stock Exchange. NDB intends to use the proceeds to strengthen its Tier 2 capital and to support the expansion of its loan portfolio through financing green, social, and sustainable (GSS+) projects.
The bank expects the bonds to qualify as regulatory Tier 2 capital. The non-viability clause provides that, in the event of a trigger as determined by the Governing Board of the Central Bank of Sri Lanka, the bonds will convert into ordinary voting shares.
The final rating is contingent on the receipt and review of final documentation that aligns with the information previously provided to Fitch.
NDB’s Sri Lankan rupee-denominated subordinated debt is rated two notches below the bank’s National Long-Term Rating, reflecting Fitch’s baseline notching due to potential loss severity and limited recovery prospects. No additional notching has been applied for non-performance risks, as the notes do not contain going-concern loss absorption features.
The bank’s National Long-Term Rating serves as the anchor for this instrument, as it captures NDB’s standalone financial strength and the risk of non-viability. Fitch last reviewed NDB’s ratings with no actions taken on 8 September 2025. Further details are available in the commentary, “Fitch Upgrades 10 Sri Lankan Banks’ National Ratings and Affirms Five after Scale Recalibration,” published on 21 January 2025.
Rating Sensitivities
A downgrade of NDB’s National Long-Term Rating would result in a downgrade of the expected bond rating. Conversely, an upgrade of the bank’s National Long-Term Rating would lead to an upgrade of the expected bond rating.
The relevant rating committee met on 8 September 2025. The principal sources of information used in this analysis are detailed in Fitch’s applicable rating criteria.
