Growth at NDB slows amid asset quality challenges, sluggish loan demand

National Development Bank PLC (NDB), which was on an aggressive growth path last year, was seen treading carefully during the March quarter (1Q19) amid narrow capital buffers and rising non-performing loans in a moribund economy. 

The bank, which recorded the highest growth in loans in 2018 among licensed banks reported  only Rs.7.5 billion in new loans—a 2.1 percent growth— for the quarter under review while the deposits grew by only 1 percent to Rs.3.5 billion from December 31, 2018. The total assets grew by just 2.0 percent during the three months to Rs.483 billion.

The bank reported an operating income of Rs.6.0 billion, up 14 percent year-on-year (YoY).

NDB reported earnings of Rs.4.54 a share or Rs.1.0 billion for the March quarter under review compared to Rs.6.49 a share or Rs.1.15 billion reported for the corresponding period 
in 2018.

Weak performance across the banking sector has been a hallmark for the quarter under review and the sector provides a proxy for the health of the overall economy.  First quarter performance can also be considered a bellwether for what is to come in the remainder of the year as almost all economic actors have gone dormant. 

NDB recorded a 38 percent YoY increase in net interest income to Rs.4.7 billion while the net fee and commission income rose by 15 percent YoY to Rs.1.06 billion. 
Net interest margin came under pressure due to higher funding cost as the margin fell to 3.41 percent from 3.46 percent in December 2018. 

Meanwhile, NDB’s gross non-performing loans ratio rose to 3.37 percent from 2.85 percent through the three months—a sign that the bank is facing asset quality troubles after two years of aggressive loan growth. 

Further, there was a spike in the provisions made for individual borrowers as such provisions for the quarter reached Rs.1.04 billion compared to Rs.330 million a year ago. 
The collective impairments however had a reversal bringing the total increase in impairment charged to 20 percent YoY to Rs. 955.9 million. 

As the bank is flirting near the systematically important bank status with Rs.500 billion asset base, NDB will either have to expedite raising shareholder funds or moderate its loan growth further, to remain within the minimum capital requirements as the bank’s Tier I capital ratio is reaching its regulatory minimum.  

A rights issue made last year by the bank was under- subscribed. The bank raised Rs.5.5 billion in Tier II capital in March this year.  

“The bank saw a moderation in growth having accounted for the prevailing economic conditions and the industry wide trends in escalating NPLs
Hence the bank’s growth has been calibrated to match such conditions, and taken a cautious approach with sound risk management and credit underwriting practices, to ensure healthy and sustainable growth”, NDB CEO Dimantha Seneviratne said. 

The government has nearly 34 percent stake in NDB through Employees’ Provident Fund, Bank of Ceylon, Sri Lanka Insurance Corporation and Employees’  Trust Fund.