NDB March net profit up on higher margins; loan growth moderates

National Development Bank PLC (NDB) reported higher profits for the January – March quarter (1Q18) as the bank was seen pricing its loans higher as the loan book growth moderated amid general slowdown in private sector credit.

The bank also made higher provisions against possible bad loans with asset quality taking a slightly negative turn. 

According to the interim results filed with the Colombo Stock Exchange, NDB group reported earnings of Rs.6.49 a share or Rs.1.15 billion total earnings for the quarter, up 56 percent from a year ago. 

The net interest income rose by 42 percent year-on-year (YoY) to Rs.3.43 billion as the net interest margin rose by 49 basis points to 3.49 percent during the three months. 

The bank appears to have mostly priced its existing loans higher as the new loan growth moderated to Rs.8.8 billion during the quarter. 

The bank has a total asset base of Rs.396 billion. 

NDB Director/CEO Dimantha Seneviratne in an exclusive interview with Mirror Business a few months back said NDB aims to become a systematically-important private bank with over Rs.500 billion assets by 2020. 

Meanwhile, the bank’s deposits rose by Rs.10.8 billion to Rs. 284.2 billion. 

NDB remains thirsty for fresh capital to maintain its ambitious growth in the loan book as the bank’s capital ratios are nearing regulatory minimums. 

By the end of March, the bank’s BASEL III compliant tier I capital ratio stood at 8.73 percent whereas the regulatory minimum is 7.875 percent. 

Meanwhile the tier II ratio stood at 13.35 percent against the regulatory minimum of 11.875 percent. 
 

The regulatory minimums of both ratios go up to 8.5 percent and 12.5 percent by January 1, 2019 when the BASEL III comes into full effect. 
This calls for fresh capital or else the bank will have to slowdown the growth in new loans. 

Meanwhile, NDB provided Rs.794.7 million for possible bad loans for the quarter compared to just Rs.111.5 million provided during the same period, last year. 
“The increase in the collective impairment charges was primarily due to the portfolio growth and some stresses experienced in the lending portfolio. 

“Similar stresses were also experienced by the industry during the period under review. The bank also made precautionary provisions for a few selective individually significant facilities on a prudent basis during the quarter,” NDB said in an earnings release. 

The bank’s asset quality weakened as the gross non-performing loan ratio rose to 2.46 percent from 1.83 percent in December 2017. 

As at March 31, 2018, the government held slightly above 30 percent stake in NDB through Bank of Ceylon, Employees’ Provident Fund and Sri Lanka Insurance Corporation.