LANKA RATING ASSIGNS


Preliminary Debt Instrument Rating to

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Bank of Ceylon's - Basel III Compliant, Tier 2, Listed, Rated, Unsecured, Subordinated, Redeemable, Sustainability - LKR 20Bn Bond

09-Dec-25

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Applicable Criteria

Methodology | Debt Instrument Rating | Aug-24

Methodology | Financial Institution Rating | Aug-24

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Related Research

Sector Study | Commercial Bank | Dec-24


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Analyst

Gayani Randima Ariyawansa | gayani@lra.com.lk
+94 114 500099 | www.lra.com.lk

PRESS
RELEASE

DISCLAIMER

This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to LRA

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Rating Type Debt Instrument
Current
(09-Dec-25)
Action Preliminary
Rating AA-
Outlook Stable
Rating Watch -


The assigned rating to the sustainability bond reflects Bank of Ceylon’s (“BOC” or “the Bank”) very strong position as the largest Commercial Bank in Sri Lanka, supported by a large advances portfolio and substantial share in the country's total deposit base. The rating also factors in the Bank’s designated position as a Domestic Systemically Important Bank (DSIB) and its 100% ownership by the Government of Sri Lanka (GoSL). BOC’s Gross NPLs stood at ~15.30% as at 6MCY25 (Net NPLs: ~7.13%), higher than the industry average of ~12.00%. The Bank’s financial risk assessment takes into account its capacity to absorb the potential credit impact of SOE-related obligations. Additionally, the Bank’s internal capital generation to cushion against the Bank’s impaired lending portfolio is a key consideration. During 9MCY25, BOC reported a Capital Adequacy Ratio of ~16.76% (~16.55% in CY24), remaining above the regulatory requirement of 15%, although marginally below the levels recorded by its peers (~19.4%). BOC maintains significant investments in Government Securities (LKR~2.6bn as of Sep’25, LKR~2.3bn as of CY24), comprising 98% of total investments, strengthening the liquidity position of the Bank. During CY24, the Bank reported a healthy increase of ~141% YoY in its PAT to record at LKR~64.4bn (CY23: LKR~26.7bn). In 9MCY25, this trend continued as Net Interest Income (NII) increased to LKR~153.2bn on account of improved spreads, translating into strong profitability. The Bank continues to manage its foreign currency exposure by limiting its open position and strengthening its liquidity profile, reflected in a Liquidity Coverage Ratio (LCR) of 254.1% in 9MCY25 (CY24: LCR ~269.6%). The rating reflects the subordinated, Tier 2, nature of the debt instrument and the designated sustainability bond features. The Sustainability Bonds shall have principal loss absorption at the point of non-viability through a write-down mechanism, which allocates losses to the Sustainability Bond holders at the sole discretion of the Governing Board of CBSL without the approval by the Sustainability Bond holders. At the point of non-viability, the outstanding principal and interest of the sustainability bond will be converted into Additional Tier 1 (AT-1) capital instrument. The Bank intends to utilize the entire proceeds of the issue to expand its sustainability loan book, to increase the Tier II capital of the Bank to enhance the Capital Adequacy Ratio, to manage the gap exposure in the Bank’s assets/liability portfolios, and to strengthen the Bank’s liquidity position.

The rating is dependent on the Bank’s ability to uphold its asset quality, capital position, and performance indicators in the near term. The rating will also closely monitor the issuance and performance of the sustainability bond in compliance with the Sustainability Bond guidelines and framework. The Bank’s 100% ownership by the Government of Sri Lanka (GoSL) and the expectation of timely support remain key considerations in the rating assessment.
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About the Entity

BOC is a Government owned Bank in Sri Lanka, established under the Bank of Ceylon Ordinance No. 53 of 1938. The management team is led by Mr. Y.A. Jayathilaka, the Acting General Manager/Acting Chief Executive Officer of Bank of Ceylon with effect from 06.08.2025.


About the Instrument

BOC intends to issue a Basel III Compliant, Tier 2, Listed, Rated, Unsecured, Subordinated, Redeemable Sustainability Bond, aiming at a total of LKR~20bn.
The issue comprises two types of debentures: Type A offers a fixed annual interest rate, while Type B provides a floating rate with payments to be made annually. The primary objectives of this issuance are to utilize the entire proceeds of the issue to expand its sustainability loan book, to enhance Tier-2 capital, and to manage and minimize the gap exposure in the Bank’s asset/liability portfolios. M/S KPMG has been engaged as the Independent External Reviewer for the proposed Sustainability Bond. BOC’s Sustainable Finance Framework is aligned with Sri Lanka’s NDCs under the Paris Agreement and is grounded in the Bank’s Sustainability Policy. It adheres to ICMA’s latest Green Bond Principles June 2025, Social Bond Principles (June 2025), and Sustainability Bond guidelines (June 2021), as well as the CBSL Green Finance Taxonomy (May 2022), ensuring environmentally responsible and impactful financing. The Bond is intended to finance or refinance eligible green and social projects that align with the Bank's Sustainable Finance Framework. BOC plans to allocate up to 75% of the proceeds of the Sustainability Bond issue for financing and/or refinancing eligible social projects, and the remaining 25% of the funds will be utilized for financing and/or refinancing eligible green projects.

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