NDB confident of achieving 16% loan growth this year

National Development Bank PLC (NDB) is confident of achieving 16 percent credit growth for this year but does not rule out the possible hiccups from the deadly coronavirus, which is threatening global growth and international trade.

Speaking at the bank’s investor forum held this week, NDB Director/CEO Dimantha Seneviratne said he is confident of achieving the envisaged growth. He sounded sanguine over the prospects for the industry this year, despite the possible headwinds. 

“At the beginning of the year, we wanted to achieve a 16 percent growth in our loan book. We have assessed the current situation with the outbreak of COVID-19 and its impact. As a country also we need to reassess its impact. 

However, we should be able to manage 15-16 percent growth for this year,” Seneviratne said.

In 2019, NDB expanded its loan book by a similar percentage, which translated into Rs.56 billion in total loans, of which 35 percent or Rs.20 billion came in during the final three months.  Seneviratne attributed the phenomenon to the deferred utilisations or disbursements of some of the project loans, which were approved during the first nine months.

Sri Lanka’s private sector credit grew by just 4.5 percent or Rs.0.2 billion in January. 

The Central Bank forecasts a 12-13 percent growth in the private credit for 2020, while First Capital Research, an independent research house, put the growth forecast at 15 percent, at the beginning of the year. 

Seneviratne said while their growth projections are based on the existing capital adequacy levels and the internal capital generation by way of retained profits, the bank is also looking at fresh capital to shore up its capital buffers.  As at December 31, 2019, NDB had a Tier I capital adequacy ratio of 9.18 percent and a Tier II ratio of 13.42 percent, against the minimum regulatory requirements of 8.5 percent and 12.5 percent.

“Still there is a cushion. We are also looking at capital raising activities. So, it is not out despite the minimum ratio remaining at 8.5 percent under the new framework for dealing with systematically important banks,” Seneviratne said, adding that the bank would rely on its earnings in the interim until fresh capital is brought in. 

“One important thing is the internal capital generation. The tax rates have come down. The effective tax rate, which was around mid-50 percent levels, would also come down to early or mid-40 percent levels. So, that itself will save capital in terms of retained profits.” 

The bank reported an effective tax rate of 49 percent for 2019, up from 42 percent in 2018. A 2018 attempt by NDB to raise Rs.6.2 billion equity via a rights issue achieved moderate success as only 55 percent of the shares were subscribed from the total rights on issue. To offset the impact, in March 2019, the bank raised Rs.6.5 billion via a Tier II debenture issue shoring up its capital profile.