NDB commences 2021 on positive note; ups profits by 34%

• Deposit base touches Rs.500bn
• Cost-to-income ratio significantly improves to 30.9%
• Profit before all taxes increases by 19% to Rs.3.5bn
• Post-tax profitability increases by 34% to Rs.2.3bn 

National Development Bank PLC (NDB) achieved sustained results for the first quarter ended on March 31, 2021, amidst challenging conditions. 

The bank’s total operating income posted a growth of 23 percent to Rs.8.2 billion, supported by an enhanced net interest income (NII), fee income and other non-fund income bases. Although interest income dipped by 8 percent, due to lower interest rates, this was more than offset by a larger dip in interest expenses of 20 percent, leading to an NII growth of 18 percent to Rs.5.1 billion. 

This also led to a broadly stabilised net interest margin of 3.29 percent, compared to 3.07 percent of 2020. Driving NIMs was the CASA base of Rs.129 billion in 1Q 2021, growing impressively by 58 percent over 1Q 2020 (quantum of growth – Rs.47 billion), which also raised the CASA ratio from 20 percent to 26 percent. 

The fee and commission income recorded a healthy growth of 29 percent to Rs.1.3 billion, due to larger credit volumes across all segments and increased transactions routed through NDB NEOS digital platforms. 

Net gains and trading also posted a record increase of 116 percent over 1Q 2020 to Rs.460 million, reflecting the forex income gained during the quarter.  

Impairment charges for loans and other losses for 1Q 2021 was Rs.2.2 billion, an increase of 70 percent year-on-year (YoY). Provision charges increased in line with the growth in the loan book and provisions made at both collective and individual levels in response to elevated risks caused by the pandemic and other stresses. 

The regulatory gross non-performing loan (NPL) ratio for 1Q 2021 was 5.40 percent (2020: 5.35 percent) reflecting the wider industry NPL behaviour. The net NPL ratio for the quarter was 2.96 percent (2020:3.23 percent). The bank is cognisant of further potential stresses on asset quality stemming from the third wave of the pandemic and has strengthened its risk management framework to mitigate and manage the impact. 

On total operating expenses, same was Rs.2.5 billion for 1Q 2021, a 4 percent increase over 1Q 2020. Within this, the bank continued to manage a reduction in controllable expenses compared to 1Q 2020, amidst considerable business growth and various initiatives carried out. 

The resultant cost-to-income ratio for the quarter was 30.9 percent – one of the best in the industry as well as amongst other corporates. This ratio has been on a significant improvement from a high of 49 percent in 2016, thanks to the increase in banking revenue in line with the bank’s strategic plans, coupled with conscious and concerted cost management initiatives and productivity enhancement measures, which include digitisation and automations. 

Accordingly, operating profit before all taxes for the period was Rs.3.5 billion, an increase of 19 percent. Total taxes for the period was Rs.1.1 billion, comprising VAT on financial services and income tax, with income tax rate reducing to 24 percent, from 28 percent. The resultant effective tax rate for 1Q 2021 was 33 percent. 

Post-tax profitability enhanced to Rs.2.3 billion, with a solid growth of 34 percent whilst profit attributable to shareholders was Rs.2.4 billion, up by an impressive 90 percent, complemented by improved performance of the NDB group’s capital market cluster, making up the unique financial service powerhouse in Sri Lanka.

NDB sustained its thus far healthy balance sheet growth well into 1Q 2021, wherein the total asset base grew by 2 percent to Rs.636 billion over December 2020 (YTD). Though moderated, this is a YoY growth (i.e. over 1Q 2020) of 15 percent and commendable in the prevailing subdued economic conditions. 

Balance sheet growth was propelled by the growth in the gross loan book to Rs.462 billion, which was a YTD growth of 4 percent and YoY growth of 9 percent, quantum of growth being Rs.18.6 billion and Rs.37.5 billion, respectively. 

Loan growth was a reflection of both lending under the Saubagya COVID-19 Renaissance Facility of the Central Bank of Sri Lanka, where NDB was the fourth highest bank to approve funds and lending through the bank’s own funds, in support of reviving the country’s economy.  mmed from multiple segments, including SMEs and consumers and across multiple sectors, preserving the dynamism of the bank’s loan book, which has enabled it to withstand external shocks.

On funding, the bank’s deposits base neared the Rs.500 billion mark, with deposits closing at Rs.499.5 billion. This is a YTD growth of 2 percent and an impressive YoY growth of 21 percent, which translates to quantum of Rs.9.2 billion and Rs.85.3 billion, respectively. This is a considerable growth considering the contraction in commercial bank deposits rates by about 3 percent from March 2020 to March 2021, rendering them less attractive to surplus units. 

Within overall deposits, CASA deposits comprised 26 percent, up from 25 percent as of December 31, 2020. NDB’s long-standing relationships with customers together with customer-centric excellence in service have supported in garnering deposits across all segments.

Return on equity of the bank for 1Q 2021 enhanced to 15.79 percent (2020: 13.13 percent) whilst the same at group level was 16.01 percent (2020: 11.20 percent). Pre-tax ROA of the bank was 1.62 percent (2020: 1.59 percent) and of the group was 1.76 percent (2020: 1.58 percent). Earnings per share of the bank was Rs.30.98 (2020: Rs.23.77), whilst the same for the group was Rs.33.62 (2020: Rs.21.99). 

The net asset value per share of the bank and the group were Rs.199.81 and Rs.213.73. In terms of capital adequacy, Tier I capital adequacy ratio and total capital adequacy ratio of the bank were 9.00 percent and 13.74 percent, respectively. The same ratios for the group were 9.47 percent and 14.09 percent. 

Liquidity coverage ratio – rupee, liquidity coverage ratio – all currency and net stable funding ratio were 167.91 percent, 158.41 percent and 114.53 percent. All these ratios were well above the regulator-stipulated minimum requirement levels, reflecting the strength, stability and sufficient liquidity of the bank. 

Commenting on this performance, NDB Director/Group Chief Executive Officer Dimantha Seneviratne noted that the period was marked by two fundamental changes, one - the prospect of prolonged low interest rates and the other - greater inclination towards digital engagements from our customers. NDB strategised in response to these changes well, which ensured continued support to our customers as well as preserved returns to our shareholders.