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ICRA affirms Sri Lanka Savings Bank rating

11 Mar 2021

  • Bank likely to benefit from new parent NSB

  ICRA Lanka Ltd. on Tuesday (9) has reaffirmed the Issuer Rating of [SL] BBB- for Sri Lanka Savings Bank, while revising the outlook to stable from rating watch with developing implications.  The rating action factors the 100% government ownership of SLSB, where the Bank is now a subsidiary of state-owned National Savings Bank. The rating takes note of the comfortable risk-weighted capital adequacy ratios (CAR) characterised by a Tier 1 and total CAR of 70.73% each as of September 2020.  “However, SLSB would have to enhance its core capital to Rs. 7.5 billion by December 2022 from Rs. 4.6 billion as of September 2020 in order to meet the minimum core capital requirement for Licensed Specialised Banks (LSBs), as stipulated by the CBSL. The timely capital support from the parent entity will be a key monitorable going forward,” ICRA added.  The rating, however, takes cognizance of SLSB’s modest scale of operations (total assets of Rs. 8.8 billion as of September 2020) and the limited franchise (four branches as of September 2020). The rating also considers the bank’s risky exposure profile, where micro-lending accounts for the bulk of the lending portfolio (27% of total gross advances as of September 2020).  Further, the rating is constrained by the weak asset quality indicators with Gross NPA ratio of 22.96% in the active portfolio (i.e. excluding the legacy Pramukha Savings and Development Bank- PSDB portfolio) as of September 2020. ICRA Lanka expects the asset quality to remain under pressure in the near term as the bank’s core segments are yet to recover from the recent challenges posed by Covid-19 pandemic and slowdown in the macro-economic situation. ICRA Lanka believes that SLSB will benefit from the support of the new parent, NSB. The outlook may be revised to “Positive” in case of a significant improvement in the resource and earnings profile of the bank with the portfolio expansion, while keeping the asset quality under control. The outlook may be revised to “Negative” in case of a sharp deterioration in asset quality and profitability indicators or lower than expected support from the parent entity.


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