Sri Lanka NSB ‘AAA(lka)’ rating confirmed

June 18, 2012 (LBO) – Sri Lanka’s Fitch Ratings has confirmed state-run National Savings Bank’s ‘AAA(lka)’ rating with a stable outlook based on continued state support for the bank and keeping to its mandate. “The rating action follows the halting and subsequent reversal of, a transaction by NSB to
acquire shares in The Finance Company PLC, which, in Fitch’s view, underlines the
government’s continued involvement with the bank to ensure that it adheres to its policy
mandate,” Fitch said.

“NSB’s rating reflects Fitch’s expectation of timely support from the government of Sri Lanka, if required, given its state ownership, significant policy mandate and systemic importance.

“Fitch is of the view that state support is likely to flow to benefit both deposits and senior unsecured creditors due to the confidence risk that could potentially undermine systemic stability.”

The bank is required to invest 60 percent of its assets in government securities and has so far invested 67 percent.

The full statement is reproduced below:

Fitch Affirms National Savings Bank at ‘AAA(lka)’; Outlook Stable

Fitch Ratings-Colombo/Mumbai/Singapore-15 June 2012: Fitch Ratings Lanka has affirmed
National Savings Bank’s (NSB) National Long-Term rating at ‘AAA(lka)’. The Outlook is Stable.
The rating action follows the halting and subsequent reversal of, a transaction by NSB to
acquire shares in The Finance Company PLC, which, in Fitch’s view, underlines the
government’s continued involvement with the bank to ensure that it adheres to its policy
mandate.

NSB’s rating reflects Fitch’s expectation of timely support from the government of Sri Lanka, if
required, given its state ownership, significant policy mandate and systemic importance. Fitch
is of the view that state support is likely to flow to benefit both deposits and senior unsecured
creditors due to the confidence risk that could potentially undermine systemic stability.

NSB’s stipulated policy role under the NSB Act No.30 of 1971 is to mobilise retail savings and
invest in government securities. The bank is bound by the Act to invest a minimum of 60% of its
deposits in government securities. NSB’s deposits have an explicit guarantee from the
government of Sri Lanka. A substantial change in NSB’s policy role and deviation from its
mandated core business activities indicating its reduced importance to the government could
put downward pressure on NSB’s rating.

Reflecting its mandate, deposits have been the predominant source of funding for NSB (85.5%
of total group assets at end-2011). Borrowing accounted for a further 6%, comprising largely of
repo borrowings of 5.9%. NSB’s holding of government securities accounted for 67% of its total
assets and represented about 43% of the banking system’s exposure to government securities at
end- 2011.