Lanka Rating Assigns Entity Rating to People's Bank

People's Bank's ("PB" or "the Bank") rating reflects its sovereign ownership (majority owned by the Government of Sri Lanka (GoSL)), established position as a retail bank, and its significance as a designated Domestic Systemically Important Bank (DSIB) in Sri Lanka. The Bank holds the second largest market share in the Licensed Commercial Banks (LCBs) industry in terms of its total assets, deposit base and loan portfolio standing at LKR 3.1tn, LKR 2.7tn and LKR 1.9tn, respectively, as of Mar'24. The rating also takes into account the Bank's strong capitalization, diverse deposit base, and improved liquidity profile. The rating also factors in the impact of sustained improvements in the key macroeconomic variables, such as reduced inflation, declining interest rates, and a relatively stable exchange rate. Moreover, conclusion of domestic debt optimization (DDO) and recent developments on dollar denominated sovereign bonds provide more clarity, although PB had limited exposure to sovereign bonds that is well provided. During CY23, the Bank's liquidity profile demonstrated a notable improvement with liquidity coverage ratio (LCR) at ~257% at End-Mar'24 (Dec'22: ~213%, Dec'21: ~155%). Being one of the two state-owned Banks in Sri Lanka, PB's loans & advances are reflective of exposure to the state-owned enterprises (SOEs) with its top 20 advances majorly comprising SOEs and constituting a sizable portion of its total loans & advances (Dec'23). Propensity for GoSL support remains very high, if needed. Moreover, PB's standalone financial profile has the ability to withstand the eventual impact of SOEs' debt restructuring (if any) to an extent. The Bank's gross stage 3 loans to total loans clocked in at ~14.7% as at End-Mar'24, slightly higher than its comparable peers, while growth in its loans & advances remained muted at ~1% (End-Mar'24) in tandem with the LCBs Industry. Going forward, an uptick in the economic activity is likely to catalyze the growth in the Industry's loans and advances. PB's exposure to exchange risk remains in check, with ~17% of its loans & advances and ~11% of its deposit base pertaining to foreign currency. The Bank holds a modest share in GoSL International Bonds, while it maintains a significant portfolio in the domestic Government Securities. (G-Sec). The Bank's Net Interest Income (NII) reduced to LKR 54bn in CY23 (CY22: LKR 76bn) and stood at LKR 12bn in 3MCY24 (LKR 12bn in 3MCY23) attributable to lower spreads. Resultantly, PB's Profit-After-Tax (PAT) declined to LKR 10bn in CY23 (LKR 17bn in CY22) and LKR 516mn in 3MCY24 (LKR 3.4bn in 3MCY23). The Bank's Capital Adequacy Ratio (CAR) of ~16.1% (regulatory requirement for DSIB is 13.5%) in 3MCY24 is slightly lower than industry average.
The rating is dependent on the Bank's ability to sustain its asset quality and improve its capitalization indicators. Improvement in spreads and profitability amidst changing economic conditions is important. Any material impact on the financial position and/or liquidity position of the Bank, due to its exposure to GoSL (investment in sovereign debt and lending to SOEs) or otherwise, will have negative impact on the rating.

About the Entity
People's Bank ("PB" or "the Bank") is a state-owned bank established under the People's Bank Act No. 29 of 1961. It is also registered under the Banking Act No. 30 of 1988. The Government of Sri Lanka (GoSL) owns ~92.27% of the Bank. The Board of Directors comprises of eight Non-Executive Directors, out of which three are Independent Directors. The Chairman of the Board along with the directors is appointed by the GoSL. The Chief Executive Officer/General Manager, Mr. Clive Fonseka has over 28 years of experience in treasury management and he is supported by a well-experienced management team.