Commercial Bank debenture has received a final National Long-Term Rating of A(lka) from Fitch Ratings for the bank’s proposed Rs. 20 billion subordinated debenture issue, reinforcing investor confidence in one of Sri Lanka’s largest private sector lenders.
Commercial Bank debenture issue to strengthen Basel III Tier 2 capital base
Fitch Ratings has assigned a final National Long-Term Rating of A(lka) to Commercial Bank of Ceylon PLC’s proposed Rs. 20 billion Sri Lankan rupee-denominated Basel III-compliant subordinated debenture issue. The rating is two notches below the bank’s National Long-Term Rating anchor, reflecting the expected loss severity associated with this class of debt rather than any deterioration in the bank’s financial strength.
According to Fitch, the rating reflects its standard approach to subordinated debt instruments, where recoveries are generally expected to be lower in the event of default. The agency stated that no additional notching was applied for non-performance risks because the proposed notes do not include going-concern loss-absorption features.
The Commercial Bank debenture issue will consist of securities with maturities of five, seven and ten years and is expected to be listed on the Colombo Stock Exchange. The proceeds will be used to strengthen the bank’s Basel III Tier 2 capital position, reduce maturity mismatches on its balance sheet and support future lending activities.
Commercial Bank expects the proposed debentures to qualify as regulatory Tier 2 capital under Basel III requirements. The securities also contain a non-viability clause, allowing them to be converted into ordinary voting shares if a trigger event is determined by the Governing Board of the Central Bank of Sri Lanka. Such provisions are designed to enhance the resilience of banks by providing an additional layer of capital protection during periods of financial stress.
Fitch confirmed that the final rating is unchanged from the expected A(lka) rating assigned on 16 April 2026, following its review of the final documentation, which was consistent with information previously provided by the bank.
The rating agency explained that Commercial Bank of Ceylon’s National Long-Term Rating serves as the anchor for the subordinated debt because it best reflects the institution’s standalone financial strength and the likelihood of the bank remaining a viable operating entity.
In its latest assessment, Fitch Ratings reiterated that the subordinated debt rating remains directly linked to the bank’s National Long-Term Rating. As a result, any future downgrade of Commercial Bank’s National Long-Term Rating would lead to a corresponding downgrade of the subordinated debt. Likewise, an upgrade of the bank’s National Long-Term Rating would result in an improvement in the rating assigned to the debenture issue.
The proposed capital raising comes as Sri Lankan banks continue to strengthen their balance sheets and capital buffers following recent economic challenges. By expanding its Basel III Tier 2 capital, Commercial Bank aims to maintain adequate regulatory capital while supporting future credit growth as economic activity gradually improves.
The Commercial Bank debenture issue is expected to provide institutional and retail investors with another fixed-income investment opportunity in the domestic capital market while helping the bank diversify its funding sources. The planned listing on the Colombo Stock Exchange also supports the continued development of Sri Lanka’s corporate debt market by increasing the availability of listed fixed-income securities.
With the final Fitch Ratings assessment now confirmed, the proposed debenture issue moves a step closer to market, reinforcing Commercial Bank’s strategy of maintaining strong capital adequacy while positioning itself for sustainable business growth in the years ahead.