LRA maintains entity rating of National Savings Bank

Thursday, 2 January 2025 02:09 - - {{hitsCtrl.values.hits}}

Lanka Rating Agency (LRA) has maintained the entity rating of National Savings Bank (NSB) as AAA with Outlook Stable.

It said NSB’s rating reflects 100% ownership of the Government of Sri Lanka and explicit guarantee of the Government on all of its deposits and interest thereon as mandated by the National Savings Bank Act. The Act requires the Bank to invest 60% of its deposits in Government securities, which lowers its credit risk and strengthens liquidity. On the other side, this restricts NSB’s ability to extend loans limiting its profitability. Being a Government-owned savings bank, NSB has a strong foothold in Sri Lankan household. The Bank holds the highest market share in the Licensed Specialised Banks (LSBs) industry in terms of its total assets and deposit base standing at Rs. 1.7 trillion and Rs. 1.5 trillion, respectively, as of 9MCY24.This has led to significant market share in banking industry’s total deposits (8.7% of industry deposits) for the Bank. The Bank remains exposed to interest rate risk due to high exposure in Government securities, as reflected by variance in its profitability over the years. During 9MCY24, the Bank’s liquidity profile demonstrated a notable improvement with liquidity coverage ratio (LCR) at 343.78% at 9MCY24 (CY23: 293.71%, CY22: 193.59%).

The Bank’s net interest income surged to Rs. 53.4 billion (CY23: Rs. 29.6 billion), a 191.0% increase from 9MCY23. Additionally, the Bank’s core spread improved 9MCY24 to 6.7% (CY23: 3.5%), in line with decreasing interest rates in Sri Lanka as liabilities were re-priced at lower rates.

The Profit Before Tax (PBT) recorded significant growth in 9MCY24 (Rs. 25.5 billion) compared to 9MCY23 due to significant drop in interest expenses, lower impairment charges and higher fee and commission income. The Bank recorded Profit After Tax (PAT) of Rs. 7.2 billion and Rs. 2.5 billion in CY23 andCY22, respectively. The Bank’s Impaired Loans (Stage 3) Ratio (net of stage 3 Impairment) was well below the industry average and stood at 4.05% in 9MCY24, demonstrating its robust asset quality. The Bank maintained very strong Capital Adequacy Ratio (CAR) of 20.5% as of 9MCY24, well above the regulatory minimum requirement of 12.5%.

The rating is dependent on continuation of Government’s guarantee 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 while maintaining its profitability and other key performance indicators, LRA said.