NDB 4Q earnings beat economic odds, reports aggressive lending growth

National Development Bank PLC (NDB) reported robust earnings supported by aggressive growth in assets as the lender ploughed strongly through multiple headwinds in the economy to pull off some solid performance for the quarter ended December 31, 2018 (4Q18).

The bank reported earnings of Rs.9.21 a share or Rs.1.69 billion for the October-December period, up 74 percent year-on-year (YoY).
The net interest income for the period rose by 34 percent YoY to Rs.4.26 billion. NDB has aggressively transformed itself to becoming a fully-fledged retail bank under its current CEO Dimantha Seneviratne from being a legacy project lender for decades and the bank is now competing neck and neck with larger players in the industry.

With Rs.474 billion in assets, the bank is now knocking on the door of so-called ‘Domestic Systematically Important Banks or D-SIBs’, which have surpassed the Rs.500 billion asset milestone.

NDB, which remained somewhat dormant, was seen rising its head and making some giant strides in several fronts during the last couple of years.
The bank made headlines for its big breakthroughs in digital delivery channels and for its many local and international awards during 2018. 

Meanwhile, NDB’s loan book grew by a staggering 27 percent or Rs.75 billion in 2018, while its deposit base closely followed suit.

The bank grew its assets by 23 percent or Rs.90 billion during the 12 months to December 31, 2018, with the bulk coming from the loans.

Sri Lanka’s banking sector earnings are largely undermined by the higher non-performing loans, higher credit costs under first time adoption of SLFRS 09 and the new debt repayment or the transaction levy slapped on the sector beginning from October 1, 2018.

During the quarter under review, NDB made Rs.1.1 billion provisions for possible bad loans under individual clients, which the bank attributed to some precautionary provisions made against selective individually significant facilities, on a prudent basis, given the challenging economic environment, based on a futuristic model, the bank said in an earnings release.

Collective impairments for the quarter showed a reversal of Rs.165.4 million, against Rs.223 million in the corresponding quarter of 2017.
The bank’s non-performing loan ratio rose to 2.85 percent, from 1.83 percent at the begging of the year.

Meanwhile, for the year ended on December 31, 2018, NDB reported earnings of Rs.28.67 or Rs.5.26 billion, compared to Rs.19.66 a share or Rs.3.49 billion profit reported for 2017, up 51 percent. During the final quarter, NDB made a rights issue, which was undersubscribed and ended in the bank raising Rs.3.4 billion.

State-run Bank of Ceylon had not taken up its rights portion and thus its stake in NDB has diluted to 8.4 percent, from 10.0 percent in September. As of December 31, 2018, the government held a 30 percent stake in the bank via the Employees’ Provident Fund, Bank of Ceylon and Sri Lanka Insurance Corporation. 

The rights issue saw several new entrants into the top 20 shareholders of the bank such as Phoenix Ventures, Rush Japan Corp., Ayenka Holdings and M.J. Fernando. The exits from the top 20 list were S. Captain, CIC Holdings and Perpetual Equities.