Tuesday, 23 July 2013 01:44
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Fitch Ratings has assigned Sri Lanka’s National Savings Bank (NSB) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of ‘BB-’ with Stable Outlooks. NSB has also been assigned a Support rating (SR) and Support Rating Floor (SRF) of ‘3’ and ‘BB-’ respectively, the latter being the same level as the sovereign.
The agency has not assigned NSB a Viability Rating as it is viewed as a public-mission bank due to its policy role.
Simultaneously, NSB’s National Long-Term rating has been affirmed at ‘AAA(lka)’ with a Stable Outlook.
NSB’s ratings reflect Fitch’s expectation of the Government of Sri Lanka’s high propensity but moderate ability to provide support to the bank in case of need. The State’s high propensity to support NSB stems from the bank’s full State ownership, systemic importance and its policy mandate of mobilising retail savings and investing them in Government securities. The State’s moderate ability to provide timely support to NSB at times of distress is reflected in the ‘BB-’/Stable sovereign rating.
The ratings also take into consideration preferential state support to NSB in the form of the explicit guarantee on deposits contained in the NSB Act. Fitch is of the view that state support, in case of need, is likely to be for depositors and senior unsecured creditors of NSB to maintain confidence and systemic stability.
Any change in Sri Lanka’s rating or to the perception of state support to NSB could result in a change in NSB’s IDRs and National Ratings.
Further, a reduced expectation of state support through, for instance, the removal of preferential support extended to NSB, or a substantial change in its policy role and/or deviation from mandated core activities indicating its reduced importance to the government, could result in a downgrade of NSB’s National Rating. The SR and SRF are sensitive to the sovereign’s ability and propensity to provide timely support, particularly if the sovereign rating were to change.
NSB is bound by the NSB Act No. 30 of 1971 to invest a minimum of 60% of its deposits in Government securities. Historically, holdings of Government securities have exceeded this threshold (76% on average from 2008-2012). In total, NSB’s exposure to the State and State owned entities (SOE) through investments in Government securities, loans and equity investments accounted for 71% of assets at end-2012. Such high exposure has supported NSB’s local regulatory capital adequacy ratios although absolute capitalisation remains thin.
Loans accounted for 27% of NSB’s assets at end-2012. Its loan book comprised mostly pawning (gold-backed) advances (36%), housing loans (30%) and loans granted against deposits (12%).
Deposits accounted for 88% of NSB’s funding at end-2012. The majority of deposits are time deposits resulting in high funding costs as it is not permitted to accept demand deposits as a licensed specialised bank.
NSB ranked as the third- largest bank in the system in deposits and the fourth-largest in assets at end -2012. It was established through the amalgamation of the Ceylon Savings Bank, the Ceylon Post Office Savings Bank and the National Savings Movement. NSB has an extensive footprint across Sri Lanka, including 219 branches and 4,053 post offices and sub-post offices at end-2012.
A full list of NSB’s ratings:
Long-Term Foreign- and Local-Currency IDRs assigned at ‘BB-’; Stable Outlook
Short-term Foreign Currency IDR assigned at ‘B’
Support Rating assigned at ‘3’
Support Rating Floor assigned at ‘BB-’
National Long-Term Rating affirmed at ‘AAA(lka)’; Stable Outlook
