NDB confident of meeting capital requirements following anticipated graduation to D-SIB status

By Nishel Fernando 
As National Development Bank (NDB) is set to achieve a systematically important domestic bank status this year, reaching Rs 500 billion in assets, the top officials of the bank expressed their confidence on meeting increased capital adequacy requirements following the upgrade. 

“The bank is on the eve of attaining D-SIB (Domestic-Systematically Important Bank) status and most probably it will be achieved towards the second half of this year. Once we reach the Rs.500 billion asset base, the total capital requirement will go up to 14 percent.  

“We have a very strong capital augmentation plan that we are working on. We are confident we should be able to get this capital needed at the appropriate time,” NDB, Director/Group Chief Executive Officer Dimantha Seneviratne said.

He was speaking at an Investor Forum organised by NDB last Wednesday to discuss the financial results of the bank for the 2018 financial year. 

Under the BASEL III capital adequacy requirements, the Central Bank has made it mandatory for D-SIBs to maintain minimum capital ratio and buffers of 14 percent in respect of total risk weighted assets with effect from January 1 this year. 

The bank’s assets reached Rs 472.9 billion in 2018 financial year recording a 23 percent year-on-year increase in their asset base. 

The bank’s total capital ratio stood at 12.63 percent at the end of 2018 financial year.

The bank raised Rs 6.4 billion via a right issue last year with the issue of 32,854,055 shares.

Further, in December 2018 NDB also announced Rs.5 billion BASEL III compliant tier two debentures with the option of going up to Rs 6.5 billion, anticipating to further enhance the capital adequacy ratios of the bank. 

Seneviratne stressed that NDB is among top five commercial banks in Sri Lanka now. 

“Basing on the numbers that have been released so far, we have already reached the top five position among commercial banks in Sri Lanka,” he said.

Referring to key performance indicators (KPIs), he pointed out that NDB performed above the industry averages in almost each indicator except for Net Interest Margin (NIM), which remained only 0.1 percent below the industry growth rates during 2018 financial year. 

Despite the prevalent highly competitive interest rate environment, the bank widened its NIM to 3.46 percent in 2018 from 3.0 percent in 2017 reflecting efficient funding strategies and increased contributions from the retail and SME segments.

Despite the non-performing loan ratio increasing to 2.85 percent in 2018 financial year from 1.83 percent in the previous year, NDB maintained its NPLs well below the industry average of 3.4 percent. 

Meanwhile, Seneviratne said the bank will focus more on a digital strategy to drive increased penetration in the retail and SME sectors this year.

Over 60 percent of the NDB’s transactions were routed via digitally-enabled methods in 2018. 

Seneviratne expects the banking sector to perform modestly this year compared to last year, as key elections are expected to be held this year.