Fitch Ratings has assigned
The notes, which will total up to
The debentures are to be listed on the
The final rating is subject to the receipt of final documentation conforming to information already received.
Key rating drivers
Fitch rates the proposed Tier 2 instrument one notch below the bank's National Long-Term Rating of 'AA-(lka)' to reflect the notes' subordinated status and higher loss-severity risks relative to senior unsecured instruments. The notes will convert to equity upon the occurrence of a trigger event, as determined by the Monetary Board of
DFCC's National Long-Term Rating is used as the anchor rating for this instrument because the rating reflects the bank's standalone financial strength and best indicates the risk of the bank becoming non-viable.
Fitch has not applied additional notching to the notes for non-performance risk, as they have no going-concern loss-absorption features, in line with Fitch's criteria.
DFCC's National Long-Term Rating was affirmed on 22 January and is driven by its Viability Rating, which is highly influenced by Fitch's view of its operating environment. It also reflects above-average capitalisation (
The Negative Outlook on DFCC's National Long-Term Rating reflects Fitch's view that the bank's capital buffers, while above average, may not be sufficient to counterbalance pressure from the weakening operating environment on its already weak profitability and funding profile relative to that of peers rated 'AA(lka)'.
Rating sensitivities
The rating on the notes will move in tandem with DFCC's National Long-Term Rating. The subordinated debt ratings may also be sensitive to relevant changes in Fitch's Bank Rating Criteria should the proposed revisions in the exposure draft be adopted.
The Outlook on DFCC's National Long-Term Rating may be revised to Stable if the bank can sustain capital buffers to sufficiently cushion its weaker asset quality amid higher operating environment-related risks.
An inability to sustain capital buffers that counterbalance increased operating environment risk alongside a weaker franchise could put pressure on the bank's National Long-Term Rating.
© Pakistan Press International, source