Banking

Sri Lanka’s NSB, PLC downgraded to ‘B’ on political crisis, falling rupee

Wednesday December 5, 2018 7:37 am

ECONOMYNEXT – Sri Lanka’s state-run National Savings Bank and People’s Leasing has been downgraded to ‘B’ from ‘B+’ by Standard and Poor’s, a rating agency due to an ongoing political crisis triggered after Mahinda Rajapaksa was appointed Prime Minister which had pushed up yield on bonds and a weak rupee.

"We lowered the long-term issuer credit rating on NSB and PLC to reflect S&P Global Ratings’ view that the Sri Lankan banking sector is facing escalated stress following political turmoil, slowdown in pace of reforms, and slower economic growth than we expected," Standard and Poor’s said

"The downgrade also factors in weakening of the sovereign’s external position given that weak rupee and rising bond yields have reduced the government’s ability to access international capital markets.

"We also believe that the Sri Lankan government no longer has the financial ability to provide extraordinary support to its banking system in a stress scenario."

The bank downgrade comes in the wake of a cut in Sri Lanka’s sovereign rating to ‘B’ from ‘B+’ on the ongoing political crisis.

S&P kept at ‘B’ rating on privately owned DFCC Bank unchanged.

The full statement is reproduced below:

National Savings Bank, People’s Leasing Downgraded To Reflect Heightened Economic Risk

– We have lowered our long-term sovereign credit rating on Sri Lanka by one= notch to ‘B’, reflecting reduced prospects of reform under the fractious political environment, which we expect to be protracted.

The country’s external financing conditions has also deteriorated as a weak rupee and high yields constrain the government’s access to international capital markets.

– In our view, a slow economy, fractious political environment, and the sovereign’s weakened external position have led to heightened economic risk for Sri Lankan financial institutions.

– We are lowering the long-term issuer credit rating on NSB and PLC to ‘B’ from ‘B+’.

-At the same time, we are affirming the long-term issuer credit rating on DFCC Bank at ‘B’. We are also affirming the ‘B’ short-term ratings on the three Sri Lankan financial institutions.

– The outlook on the long-term rating for all these entities are stable, reflecting the stable outlook on the sovereign.

SINGAPORE (S&P Global Ratings) Dec. 4, 2018–S&P Global Ratings said today that it had lowered its long-term issuer credit rating on National Savings Bank (NSB) and People’s Leasing & Finance PLC (PLC) to ‘B’ from ‘B+’. At the same time, we affirmed the long-term issuer credit rating on DFCC Bank at ‘B’. The outlooks on the long-term ratings are stable. In addition, we affirmed our ‘B’ short-term issuer credit rating on all the three entities.

We also lowered the issue rating on NSB to ‘B’ from ‘B+’; PLC has no outstanding debt securities.

We lowered the long-term issuer credit rating on NSB and PLC to reflect S&P Global Ratings’ view that the Sri Lankan banking sector is facing escalated stress following political turmoil, slowdown in pace of reforms, and slower economic growth than we expected. We affirmed the ratings on DFCC despite the higher risk from the operating environment because the bank’s capital assessment already captures these risks at the current rating level.

We lowered the sovereign rating on Sri Lanka based on our assessment that the current political standoff has weakened the sovereign’s external financing conditions and reduced the likelihood that further reforms will improve Sri Lanka’s macroeconomic fundamentals and institutionalize sustainable policy frameworks over the next 12-18 months.

The downgrade also factors in weakening of the sovereign’s external position given that weak rupee and rising bond yields have reduced the government’s ability to access international capital markets. We also believe that the Sri Lankan government no longer has the financial ability to provide extraordinary support to its banking system in a stress scenario.

We consider it unlikely that Sri Lankan financial institutions would be immune to rising credit pressure on the sovereign and the broader operating environment. In our view, this weakened external position of the sovereign has heightened imbalances in the operating environment for the banks.

We expect the external financing pressure faced by the sovereign to hurt the broad economy, including the banking system. This accentuates the economic risk for banks in Sri Lanka. Continued high loan growth at about 16% (annualized) for first half of 2018, despite the economy slowing down sharply to 3.3% (in 2017), adds to the imbalance.

We have witnessed increasing credit stress for banks in Sri Lanka, partly due to lower-than-expected GDP growth. The asset quality for these banks has deteriorated more than we expected. The banks’ nonperforming loans (NPLs) rose to 3.6% by end-August 2018, from 2.5% at end-2017 (compared with our expectation of 3%-3.2% by end-2018). Slower GDP growth, a depreciating rupee, and rising interest rates have partly contributed to this increase. Given the heightening economic risk, we expect NPLs to rise further to 4.5%-5% over the next 12-18 months, but remain within our tolerance level for a BICRA 9 system.

The increased economic risk would also require banks to maintain higher risk-adjusted capital to take care of the additional risk in the system.

Sri Lankan banks are already seeing higher pricing for their external funding, which could negatively affect their profitability. We believe the large state-owned banks may be required to tap the external markets at higher costs to finance the sovereign’s bond repayments. In a low-probability and high-impact downside scenario, if the political turmoil escalates or prolongs, uncertainty could spread to the banking sector and cause funding stress or liquidity outflows.

PEOPLE’S LEASING & FINANCE PLC

The rating on PLC reflects the credit profile of the People’s Bank group, of which PLC is a core entity. The rating on PLC is equalized with the group’s credit profile.

We have revised PLC’s stand-alone credit profile (SACP) to ‘b’ due to the worsening operating environment. PLC’s dependence on wholesale funding and its concentration in commercial vehicle financing also constrain the rating. The company’s moderate capital and earnings temper these weaknesses.

The stable outlook on PLC reflects our expectation that PLC will remain a core entity of the People’s Bank group at least for the next 12 months because commercial vehicle leasing will remain a large and profitable business for the group.

We don’t see any upside potential for the rating over the next 12 months.

We may downgrade PLC if the People’s Bank group’s capitalization reduces substantially.

NATIONAL SAVINGS BANK

The rating on NSB reflects our view that the Sri Lankan government will almost certainly provide extraordinary support to the bank in a stress situation.

We have revised NSB’s SACP to ‘b’ from ‘b+’, due to the worsening operating environment. Our assessment of the SACP benefits from the bank’s superior funding and liquidity metrics. A statutory guarantee on 100% of deposits and a requirement to invest 60% of deposits in government securities support the bank’s liquidity and funding. NSB’s low risk-adjusted capital ratio tempers the strength.

The stable outlook on NSB reflects the outlook on its parent, the government of Sri Lanka. We expect the bank’s critical role and link to the government to remain unchanged over the next 12 months.
The most likely change (up or down) to our rating and outlook on NSB will be from a change in the creditworthiness of the government of Sri Lanka.

DFCC BANK

The rating on DFCC reflects the Sri Lanka-based bank’s limited deposit base and weak capitalization. DFCC’s satisfactory business position, earnings, and asset quality temper these weaknesses. We assess the bank’s SACP as ‘b’.

Our stable outlook on DFCC Bank reflects our view that the bank will maintain its credit profile despite tough operating conditions in Sri Lanka over the next 12 months.

We may lower the rating on DFCC if the bank’s risk-adjusted capital ratio declines below 3%. This could happen if DFCC’s profitability is lower or if its loan growth exceeds our expectations.

We are unlikely to upgrade DFCC over the next 12 months.

BICRA SCORE SNAPSHOT

BICRA SCORE SNAPSHOT
Sri Lanka

                              To                From
Anchor                        b+                bb-
BICRA Group                   9                 8
Economic risk                 9                 8
 Economic resilience          Very high risk    Very high risk
 Economic imbalances          Very high risk    High risk
 Credit risk in the economy   Very high risk    Very high risk
Industry risk                 8                 8
Institutional framework       Very high risk    Very high risk
 Competitive dynamics         High risk         High risk
 System-wide funding          Very high risk    Very high risk
Trends
 Economic risk trend          Stable            Stable
 Industry risk trend          Stable            Stable
Government Support            Uncertain         Supportive


RATINGS SCORE SNAPSHOT

National Savings Bank
                             To                From
Anchor                       b+                bb-
Business position            Adequate (0)      Adequate (0)
Capital and earnings         Very weak (-2)    Very weak (-2)
Risk position                Adequate (0)      Adequate (0)
Funding                      Above avg (+1)    Above avg (+1)
Liquidity                    Strong            Strong
SACP                         b                 b+
Support                      0                 0
Group                        0                 0
GRE support                  Critical/         Critical/
                             Integral (0)      Integral (0)
Additional factors           0                 0

Issuer credit rating         B/Stable/B        B+/Stable/B


People's Leasing & Finance PLC
                             To               From
Anchor                       b-               b
Business position            Strong (+1)      Strong (+1)
Capital and earnings         Moderate (0)     Adequate (0)
Risk position                Adequate (0)     Adequate (0)
Funding                      Adequate (0)     Adequate(0)
Liquidity                    Adequate         Adequate 
Comparable Rating Analysis   0                0
SACP                         b                b+
External Influence           0                0
Group Influence              0                0
Government Influence         0                0
Guarantees or   Other External Influences   0                0
Issuer credit rating         B/Stable/B       B+/Stable/B


DFCC Bank

                            To                 From
Anchor                      b+                 bb-
Business position           Adequate (0)       Adequate (0)
Capital and earnings        Weak (0)           Weak (-1)
Risk position               Adequate (0)       Adequate (0)
Funding                     Below avg (-1)     Below avg (-1)
Liquidity                   Adequate           Adequate 
SACP                        b                  b
Support                     0                  0
Group                       0                  0
GRE support                 0                  0
Additional factors          0                  0
Issuer credit rating        B/Stable/B         B/Stable/B

Markets

Sri Lanka stocks close down 0.60-pct, dragged by HNB and LOLC

Friday November 13, 2026 3:28 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed down on Friday, CSE data showed, with the benchmark All Share Price Index moving down 0.60 percent.

The ASPI was down 133.22 points at 22,024.18, while the more liquid S&P SL20 was down 1.06 percent, or 67.55 points, at 6,298.02.

The ASPI ended the week up 784.53 points from last Friday.

Positive contributors to the ASPI were Dialog Axiata (up 0.40 percent at 50.20 rupees), Distilleries Company of Sri Lanka (up 0.52 percent at 58.30 rupees), Aitken Spence (up 3.60 percent at 151.00 rupees), Ceylon Tobacco Company (up 1.05 percent at 1,828.50 rupees), and LOLC Finance (up 1.96 percent at 5.20 rupees).

Hatton National Bank (down 1.88 percent at 403.75 rupees), Richard Pieris and Company (down 6.21 percent at 27.20 rupees), LOLC Holdings (down 2.17 percent at 405.00 rupees), Sampath Bank (down 1.91 percent at 154.00 rupees), and Singer (Sri Lanka) (down 2.40 percent at 77.30 rupees) were top negative contributors.

Market turnover was 3.23 billion rupees. Capital goods led turnover with 869.21 million rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka MP slams budget speech for omitting Tamil national question

Friday November 13, 2026 2:56 pm

ECONOMYNEXT – A Sri Lanka legislator has voiced strong disappointment that the President’s budget speech failed to make a single mention of the Tamil national question.

“It is very unfortunate that in His Excellency the President’s speech, there has not been a single word mentioned about the Tamil national question. Not a single word,” Shanakiyan Rasamanickam said.

“A budget speech generally, is a policy direction of the government for the next year. The budget speech is not only a statement of the country’s fiscal position or the economy’s position. It is the country’s, the government’s, plan, or what the government plans to do the following year. That’s a policy statement.”

Former presidents would at least mention the Tamil question even if it was not resolved, he said.

Former President Ranil Wickremesinghe in his speech, in his policy statement, he would mention: “The Tamil national question must be resolved,” Rasamanickam said.

Former Presidents Maithripala Sirisena and Gotabaya Rajapaksa also mentioned that the national ethnic question must be resolved, he added.

“Every President, every country’s Head of State, in their policy statements, have acknowledged the fact that there is an unresolved national issue, the Tamil national question, that it needs to be resolved. Various governments have proposed various mechanisms; none of them have succeeded, but at least it was mentioned.”

This year’s budget made allocations for the Office of Missing Persons, and the Office of Reparations.

“But the domestic mechanism is a mechanism that the victim community has rejected. So you all are allocating money to a mechanism where the victim community is not going to be part of.”

Last year’s budget 1 billion was allocated to be spent on the Trincomalee and Jaffna airports.

“Where was that 1 billion for the Trincomalee and Jaffna airports spent last year?”

“The trajectory of this government, Honourable Deputy Speaker, is worrying to me. It’s really worrying to me. Because if the objective is to say that there is no Tamil national question, if the objective is to say that you all have resolved any ethnic issue that this country faced, then Honourable Deputy Speaker, then I think the Tamil people will teach this government a very, very, very harsh lesson in the future.” (Colombo/Nov13/2026)

Bonds & Forex

Sri Lanka sells extra Rs6.5bn Treasury bills after auction

Friday November 13, 2026 12:32 pm

ECONOMYNEXT – Sri Lanka has sold 6,500 million rupees of treasury bills offered on tap at an average rate of 9.95 percent, the public debt management office said, bringing the total of bills sold in the week to 85.562 billion rupees.

The issue offered 90 billion.

Total market subscription was 6.5 billion rupees.

The debt office sold a 12-month bill at 9.95 percent.

On Wednesday (11) the debt office raised 79 billion rupees of 3, 6 and 12 month bills after offering 90 billion.

The settlement date is November 13. (Colombo/Nov13/2026)

Construction and Real Estate

Access Engineering Sept quarter group net profit surges 200-pct to Rs4.75bn

Friday November 13, 2026 12:15 pm

ECONOMYNEXT — Sri Lanka’s Access Engineering PLC recorded a group net profit attributable to equity holders of Rs. 4.75 billion for the quarter ended September 30, surging 200 percent from Rs. 1.58 billion a year earlier, interim accounts showed.

Basic earnings per share rose to Rs. 4.08 for the September quarter, up from Rs. 1.58 previously.

Quarterly group revenue expanded 36 percent to Rs. 20.39 billion from Rs. 14.94 billion, underpinned by condominium property handovers — reflected in inventories dropping Rs. 7.69 billion since March to Rs. 35.71 billion — alongside strong automobile sales and steady civil engineering execution.

Cost of sales rose at a slower 27 percent to Rs. 14.34 billion, lifting gross profit by 64 percent to Rs. 6.05 billion and expanding gross margins to 29.7 percent from 24.7 percent.

Other income jumped 144 percent to Rs. 259.9 million, while administrative expenses rose 75 percent to Rs. 1.14 billion, leaving operating profit up 64 percent at Rs. 5.16 billion.

However, finance costs more than doubled, rising 107 percent to Rs. 1.18 billion on elevated group borrowings of Rs. 43.74 billion, partly offset by finance income climbing 302 percent to Rs. 42.2 million.

Share of results from equity-accounted investees rose 122 percent to Rs. 26.7 million, pushing pre-tax profit up 56 percent to Rs. 4.05 billion.

Income tax swung to a net reversal of Rs. 186.6 million from an expense of Rs. 804.1 million, boosted by deferred tax assets on unrelieved losses from a 100 percent enhanced capital allowance claimed by 60 percent-owned radiopharmaceutical subsidiary Access Medical Tracers (Private) Limited.

Total period profit rose 136 percent to Rs. 4.24 billion, with non-controlling interest declining 24 percent to Rs. 164.9 million following last year’s buyout of minority shareholders in Harbour Village (Private) Limited.

No separate exchange gain or loss was itemized in quarterly earnings, though foreign currency translation via associates recorded a Rs. 17.4 million loss in other comprehensive income, alongside USD 16.6 million in corporate guarantees.

Notes also flagged an expected Rs. 1.45 billion recovery from the terminated South Asia Commercial and Logistics Hub project, a Rs. 225 million post-quarter legal settlement already provided for, and a Supreme Court appeal over a 2011/12 PAYE tax ruling.

Group assets stood at Rs. 132.4 billion as of September 30, with net asset value per share at Rs. 46.70, as the Employees’ Provident Fund raised its stake to 5.69 percent.

Access Engineering shares closed at 80.00 rupees at the end of September and are currently trading around 85.80 rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka private sector says timely implementation of Budget 2027 key

Friday November 13, 2026 11:43 am

ECONOMYNEXT – Private sector body, The Ceylon Chamber of Commerce, said it was encouraged by the broad direction of Budget 2027, noting that it reinforces Sri Lanka’s commitment to economic transformation while maintaining policy continuity, macroeconomic stability, and fiscal discipline.

“This continuity is particularly important as the country seeks to transition from economic stabilisation to a more durable, investment-led growth trajectory.”

The chamber also noted several areas where the Budget could have placed greater emphasis to strengthen the country’s growth prospects.

“In particular, there is a need for a stronger focus on attracting Foreign Direct Investment (FDI), accelerating factor market reforms, particularly in land and labour, and fast-tracking public procurement reforms to improve the efficiency and speed of project implementation.

“More targeted and actionable proposals could have been introduced to unlock the potential of sectors with significant growth opportunities, including tourism, agriculture, IT/BPO and logistics.”

The chamber said the budget contains positive measures aimed at enhancing competitiveness, and external sector resilience, while presenting opportunities for focus on sectors that can accelerate growth.

“A number of the key structural reforms identified in last year’s Budget have been carried forward and strengthened, providing greater certainty and predictability to businesses and investors.

“These include the continued implementation of the Trade National Single Window (TNSW), the phased removal of para-tariffs, the rollout of the Digital ID framework, efforts to expand market access through new Free Trade Agreements (FTAs), the strengthening of one-stop-shop investment facilitation mechanisms, progress on Customs reforms, the expansion of Bandaranaike International Airport (BIA), enhanced financing support for SMEs, and reforms relating to the management of State-Owned Enterprises.”

The CCC said that more than 20 proposals submitted by it have been reflected in Budget 2027.

These include measures to strengthen investor facilitation through the establishment of a professionally managed investment promotion agency; continued efforts to improve trade facilitation and export competitiveness; the Government’s consideration of a successor programme with the International Monetary Fund (IMF); accelerated progress on key legislative reforms; the expansion of digital government services; and the promotion of cashless payments and broader digital adoption. The Budget has also captured several priorities relating to energy security, including the accelerated deployment of Battery Energy Storage Systems (BESS) and investments in fuel storage infrastructure, initiatives to optimize underutilized agricultural land, measures to support the expansion of the digital economy and the IT/BPO sector, and tax reforms to support exporters, including the acceptance of newly VAT-registered exporters as eligible exporters.

“The inclusion of these priorities reflects the value of sustained public-private dialogue and demonstrates increasing alignment between national policy objectives and the needs of a competitive, export-oriented economy.

“The priority now must be effective and timely implementation to translate policy commitments into investment, competitiveness, exports and sustainable growth.” (Colombo/Nov13/2026)