International ratings agency Fitch has maintained Hatton National Bank's AA-(lka) National Long-Term Rating with a stable outlook, though the bank faces headwinds from Sri Lanka's weakening sovereign credit profile and rising credit costs.
Fitch Ratings has affirmed Sri Lanka's fourth-largest commercial bank, Hatton National Bank PLC (HNB), maintaining its National Long-Term Rating at 'AA-(lka)' with a stable outlook. The ratings agency also upheld the bank's senior and subordinated debt ratings at 'AA-(lka)' and 'A(lka)' respectively, reflecting the bank's strong domestic franchise despite challenging macroeconomic conditions.
The rating determination reflects HNB's intrinsic financial strength balanced against Sri Lanka's deteriorating sovereign credit profile, rated at 'CCC+' by Fitch. According to the ratings agency, the bank's predominantly domestic operations and exposure to government securities create vulnerability to changes in the nation's financial health. However, Fitch noted that HNB maintains above-average capitalisation among peers, with a common equity Tier 1 ratio of 16.8% at the end of the first quarter of 2026, positioning it favourably relative to competitors despite dividend distributions and sustained credit growth.
HNB has pursued an aggressive expansion strategy, with loan growth reaching 42% over a 15-month period through March 2026, driven substantially by the corporate segment. Notably, the bank has increased its overseas lending exposure to 7% of total loans by early 2026, up from 2% the previous year, as it deploys excess foreign-currency liquidity. Fitch expects this growth trajectory to moderate as the bank adopts a more cautious approach amid operating environment challenges.
Looking ahead, Fitch projects profitability will decline over the near to medium term due to higher impairment charges and margin compression from recent policy rate hikes. The agency expects credit impairments to rise as economic challenges persist, though the impaired loan ratio may decline due to continued loan growth. The bank's loan-to-deposit ratio has climbed to 82.1% as of first quarter 2026, approaching pre-crisis levels, which could further reduce liquidity headroom despite improvements in foreign-currency funding access.
