Fitch Ratings Lanka has this week affirmed National Savings Bank's (NSB) National Long-term rating at 'AAA(lka)', saying the rating reflects its full state ownership, systemic importance, the low credit risk (on the national rating scale) on a majority of its assets and the explicit government guarantee on deposits.
Government securities accounted for as much as 65% of NSB's asset base at end-2007, largely owing to the NSB Act, which requires a minimum of 60% of deposits to be invested in government issued or guaranteed securities. However, this component has been declining over the past few years with management placing emphasis on increasing its exposure to higher-yielding retail loans.
Housing loans accounted for 8.5% of its asset base at FYE07, with loans to other financial institutions, loans against fixed deposits, and gold-backed lending accounting for a further 3.6%, 3.5% and 2.6% respectively. The relatively low-risk nature of NSB's loan portfolio enabled a gross NPL ratio of 1.2% at FYE07, far lower than that of most commercial banks in the country, the Fitch statement said.
Retention and profitability have been declining over the past few years with greater contribution to the government treasury via payments to the consolidated fund in lieu of dividends (77.5% of post-tax profit at FYE07) and higher taxation (effective tax rate 63.4% at FYE07 from 51.1% at FYE05).
“Although NSB has been able to defend its margins in the last few years as deposits rates were kept more or less stable, margins are likely to decline if rising interest rate trends were to continue, as Fitch is of the view that the bank may be compelled to increase rates to preserve its market share, which has declined to 13.5% of system deposits at FYE07 from 17.1% at FYE04,” Fitch said..