NDB 4Q slips on higher provisions; full-year profits up by 35%

NDB Bank PLC reported strong top line, but the profits slipped in the three months ended December 31, 2021 (4Q21) as the bank made outsize provisions against possible loan defaults and other financial assets although the asset quality had improved. 

The bank reported net interest income of Rs.5.72 billion for the October - December 2021 period, up 39.2 percent from a year ago as the bank improved its interest margins amid robust growth in loans, though some slowdown seen during the quarter under review.

The bank gave Rs. 82.6 billion in new loans in 2021 which translated to 19 percent growth, of which Rs.16.7 billion came during the December quarter, slowing from the Rs.22.4 billion in the September quarter. The bank improved its margin to 3.25 percent from 3.07 percent at the start of the year as the decline in interest expense outstripped the decline in the interest income during the year while the bank grew its low cost deposits at a faster pace.

 Under this backdrop, the bank reported earnings of Rs.3.04 a share or Rs.936.2 million for the December quarter compared to earnings of Rs.5.36 a share or Rs.1.25 billion in the corresponding period in 2020, a 24.9 percent decline. 

The bank’s share slipped by Rs.1.00 or 1.43 percent yesterday to end at Rs.68.90. 
However, for the full financial year, the bank reported earnings of Rs.22.44 a share or Rs.6.9 billion compared to earnings of Rs.21.99 a share or Rs.5.12 billion, up 35 percent. The quarterly profits were weighed down by the 82.3 percent increase in provisions made for loans, advances and other financial assets, and to a lesser degree by 11.9 percent increase in expenses. However, the cost to income ratio declined to 33.7 percent from 37 percent at the start of the year, the bank said. The bank made provisions of Rs.3.61 billion for the quarter and Rs.10.3 billion for the full year, up 51 percent. NDB said it increased the provisions on foreign currency denominated government securities to Rs.2.0 billion in 2021 considering the sovereign downgrades. Despite the fourth quarter setback, which was largely expected to be one off, the bank remains upbeat of its prospects in the next four years as it aims to become a trillion rupee assets bank in 2025. Currently, the bank has an asset base of Rs.703 billion. 

The bank during the year added Rs.9.5 billion in fresh equity by way of a rights issue and a private placement and raised a further Rs.8.0 billion via debentures in November, bolstering its capital base. 

Despite higher provisions which are largely an action of extra prudence, the bank managed to reduce its gross non-performing loans ratio to 4.65 percent from 5.35 percent in 2020. 

By the end of 2021, Norfund held 9.99 percent stake in NDB being its single largest shareholder, while the government via the Employees’ Provident Fund, Bank of Ceylon, Sri Lanka Insurance Corporation, Employees’ Trust Fund and DFCC Bank had close to 33 percent stake.