Fitch affirms NSB at AAA(lka); outlook stable

Fitch Ratings Lanka has affirmed National Savings Bank (NSB) National long-term rating at AAA(lka); outlook stable.

The rating action follows the halting and the subsequent reversal of a transaction by NSB to acquire shares in The Finance Company PLC which in fitch's view underlines the Government's continued involvement with the Bank to ensure that it adheres to its policy mandate.

NSB's rating reflects fitch's expectation of timely support from the Government, it required given its State ownership significant policy mandates and systemic importance. Fitch said that the state support is likely to flow for the benefit of deposits and senior unsecured creditors due to the confidence risk that could potentially undermine systemic stability.

NSB's stipulated policy is to mobilise retail savings and invest in government securities. The Bank is bound by the Act to invest 60 percent of deposits in government securities. NSB's deposits have an explicit guarantee from the government. A change in NSB policy and deviating from its core business activities indicating its reduced importance to the government could put downward pressure on NSB's ratings.

Deposits have been the main source of funding for NSB accounting for 85.5 percent while borrowings accounted for a further six percent comprising repo borrowings of 5.9 percent.

NSB's holding of government securities accounted for 67 percent of its total asserts and represented about 43 percent of the banking systems exposure to government securities at end 2011.