Fitch affirms National Savings Bank at ‘AAA’

Fitch Ratings Lanka said yesterday it has affirmed National Savings Bank’s (NSB) National Long-Term rating at ‘AAA(lka)’. The Outlook is Stable.

NSB’s rating reflects its full state ownership and importance to the government in terms of its stipulated policy role under the NSB Act No. 30 of 1971 of mobilising retail savings and investing in Government Securities (GS). The bank is bound by the act to invest a minimum of 60% of its deposits in Government issued and guaranteed securities.

NSB’s deposits have an explicit guarantee from the Government of Sri Lanka. Its policy role and full state ownership further underpin the rating by way of potential government support in case of need. A substantial change in NSB’s policy role indicating its reduced significance to the Government could put downward pressure on NSB’s rating.

NSB’s exposure to the State (excluding GS under resale agreements) accounted for 68% of its assets at end-2010, comprising GS held to maturity (89%), GS held for trading (4.5%), rupee loans (4.3%) and other loans (2.1%). The bank’s GS holdings accounted for 11% of outstanding Central Government debt at end-2010. Fitch notes that significant investments in GS expose NSB to interest rate risk.

Loans accounted for 20% of NSB’s assets at H111 and end-2010. Lending to the consumer/ retail customer segment accounted for the majority of its loan book and comprised mostly housing loans (39% at end-2010), pawning (gold-backed) advances (26%) and loans against deposits (16%). Fitch notes that NSB’s gross Non-Performing Loans have historically been low. It posted a gross NPL ratio of 3.8% at H111 and 2.5% at end-2010.

NSB’s Net Interest Margins contracted to 4.3% in H111, against a backdrop of low interest rates, compared with 4.7% in 2010. Profitability as measured by return on assets increased to 1.7% (annualised) in H111 from 1.4% in 2010 solely on account of reduced effective taxes.