Steady State

July 29, 2008 (LBO) - Fitch Sri Lanka has confirmed the 'AAA(lka)' long term rating of state-run National Savings Bank with a stable outlook but has said low interest rates offered by the bank are shrinking its market share. Though the bank has been making profits in the last few years by keeping deposit rates steady, its market share had fallen to 13.
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5 percent of banking system deposits by the end of the 2007 financial year from 17.1 percent at the end of 2004, Fitch Ratings said.

Fitch said the bank may be "compelled to increase rates to preserve its market share". Many private banks are already offering higher rates to savings depositors in the face of the highest inflation experienced in the history of Sri Lanka of close to 30 percent.

NSB's 'AAA(lka)' the highest possible domestic rating, reflected its full state ownership, systemic importance, low credit risk (on the national rating scale) on a majority of its assets and the explicit government guarantee on deposits, Fitch said.

Government securities accounted for 65 percent of NSB's asset base by end-2007 with the NSB's governing law requiring a minimum of 60 percent of deposits to be invested in government issued or guaranteed securities.

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