ICRA Lanka assigns AAA rating with stable outlook to National Savings Bank

Jun 24, 2019 (LBO) – ICRA Lanka Limited has assigned the issuer rating of [SL] AAA with stable outlook to National Savings Bank.

Rationale

The rating takes note of the 100% Government of Sri Lanka (GoSL) ownership, which provides a strong likelihood of sovereign support and, the 100% explicit guarantee provided by the Government of Sri Lanka (GoSL) for the moneys deposited with the Bank and the interest thereof through the National Savings Bank Act (NSB Act).

The rating factors in the low risk investment portfolio, good quality lending portfolio and the presently adequate capital profile. The earnings of the Bank moderated as a result of derecognition of LKR 3.6 Bn as net income earned from the government securities transactions from April 01, 2019 as a result of removal of Withholding Tax from government securities transactions.

The Bank’s investment portfolio is characterised by low risk, with NSB mandated to invest a minimum of 60% of the total deposits in government securities; as in March 2019, 62% of the deposits was in government securities. The quality of the lending portfolio is driven by zero NPAs reported on its exposure to GoSL, SOE1 and corporate portfolio which accounted for 41% of the lending portfolio.

The standalone gross NPA ratio (GNPA %) of the retail portfolio (59% of lending portfolio) stood at 2.46% as of Dec-18. NSB’s BASEL III complied total capital adequacy ratio (CAR) stood at 15.43% (Tier-I capital ratio at 12.81%) as compared to 14.00% (Tier-I capital ratio at 10.00%) regulatory requirement as of Mar-19.

ICRA Lanka notes that moderation in internal generation will require the Bank to secure commensurate capital from GoSL in the medium term. Going forward, maintenance of adequate buffers (at least 1%) over and above the minimum capitalisation requirements (Tier-I plus CCB and total CAR) would be critical for sustenance of the current rating.

Full Rating Action:

NSB_Press_Release_Jun_24_2019