Fitch says NSB rating ‘Stable’ but no reference to controversial investments
View(s):Fitch Ratings has assigned the National Savings Bank (NSB) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of ‘BB-’ with ‘Stable’ outlooks.
But the agency didn’t refer to any of the controversial decisions the bank has taken over the past 18 months.
NSB has also been assigned a ‘Support’ rating (SR) and ‘Support Rating Floor’ (SRF) of ’3′ and ‘BB-’ respectively, the latter being the same level as the sovereign. The agency has not assigned NSB a ‘Viability Rating’ as it is viewed as a public-mission bank due to its policy role, the rating agency said.
Simultaneously, NSB’s National Long-Term rating has been affirmed at ‘AAA(lka)’ with a ‘Stable Outlook’.
Last year, drama surrounded the NSB over a controversial investment in a loss-making finance company (TFC). Eventually, the transaction was revoked by the Securites and Exchange Commission and the NSB Chairman Pradeepa Kariyawasam, husband of then-beleaguered Chief Justice Shirani Bandaranayake was asked to quit. A few months ago, Sunil Sirisena, who took over as chairman from Mr. Kariyawasam, also quit until pressure when asked to approve a US$1 billion borrowing via a bond issue.
The rating agency said NSB’s ratings reflect Fitch’s expectation of the Government of Sri Lanka’s high propensity but moderate ability to provide support to the bank in case of need. The state’s high propensity to support NSB stems from the bank’s full state ownership, systemic importance and its policy mandate of mobilising retail savings and investing them in government securities. The state’s moderate ability to provide timely support to NSB at times of distress is reflected in the ‘BB-’/Stable sovereign rating.
“The ratings also take into consideration preferential state support to NSB in the form of the explicit guarantee on deposits contained in the NSB Act. Fitch is of the view that state support, in case of need, is likely to be for depositors and senior unsecured creditors of NSB to maintain confidence and systemic stability,” the media release added.
Any change in Sri Lanka’s rating or to the perception of state support to NSB could result in a change in NSB’s IDRs and National Ratings.
“Further, a reduced expectation of state support through, for instance, the removal of preferential support extended to NSB, or a substantial change in its policy role and/or deviation from mandated core activities indicating its reduced importance to the government, could result in a downgrade of NSB’s National Rating. The SR and SRF are sensitive to the sovereign’s ability and propensity to provide timely support, particularly if the sovereign rating were to change,” the statement added.
NSB is bound by the NSB Act No.30 of 1971 to invest a minimum of 60 per cent of its deposits in government securities. Historically, holdings of government securities have exceeded this threshold (76 per cent on average from 2008-2012). In total, NSB’s exposure to the state and state owned entities (SOE) through investments in government securities, loans and equity investments accounted for 71 per cent of assets at end -2012. Such high exposure has supported NSB’s local regulatory capital adequacy ratios although absolute capitalisation remains thin.
Fitch said loans accounted for 27 per cent of NSB’s assets at end-2012. Its loan book comprised mostly pawning (gold-backed) advances (36 per cent), housing loans (30 per cent), and loans granted against deposits (12 per cent).
Deposits accounted for 88 per cent of NSB’s funding at end-2012. The majority of deposits are time deposits resulting in high funding costs as it is not permitted to accept demand deposits as a licensed specialised bank.
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