LRA Assigns Initial Rating to National Savings Bank

The ratings of the National Savings Bank (NSB or The Bank) reflect 100% ownership of the Government of Sri Lanka. The rating of the Bank is driven by the government's explicit guarantee on its deposits mandated by the National Savings Bank Act. The Act requires the Bank to invest 60% of its deposits in government securities which lowers its risk and improves liquidity. Being a government-owned savings bank, the Bank has a strong foothold in Sri Lankan households. The ratings reflect the Bank's significant market share in industry deposits (11% of industry deposits). Due to the statutory requirement of 60% investment in government securities, the Advances to Deposit Ratio (ADR) of the Bank remains low and the lending book of the Bank is granular exhibiting lower risk. The recent steep increase in policy rates has impacted the margins of the Bank but overall performance remains strong with 9MCY22 profit standing at LKR ~3bn. The Bank enjoys strong asset quality but under current circumstances, Bank has acted prudently and booked a provisioning of LKR 7.2bn in 9MCY22 which will act as a cushion for the rising NPLs. An expected decrease in policy rates by mid-next year may improve the margins and in turn performance. The Bank has a strong asset base of LKR 1.6tn and strong equity well above the regulatory requirements. Despite a recent decrease in margins, increased provisioning expense, and decrease profitability, the capital adequacy of the Bank remained strong with CAR standing at ~17.7% as of 9MCY22.
The rating is dependent on the guarantee of the government on the deposits of the Bank as per the National Saving Bank Act. Any significant change in the Act or significant deterioration in the Bank's liquidity position amidst the government's inability to support the Bank can impact ratings. The Bank's continuous ability to meet regulatory requirements will remain key. Any haircut imposed by the government on its government securities for managing government debt can impact the margins of the Bank and in turn rating.

About the Entity
National Savings Bank (NSB or the Bank) was incorporated in 1972 by the National Savings Bank Act, No.30 of 1971, and was granted the status of a Licensed Specialized Bank in terms of the Banking Act No. 30 of 1988. It is regulated by the Central Bank of Sri Lanka. NSB operates with 262 branches spread across the island and 4,538 staff members.
The overall control of NSB vests in the seven-member Board of Directors which is appointed by the Government. The Chairperson of the Board is Ms. Keasila Jayawardena who was appointed to the Bank in January 2020.