NDB eyes trillion-rupee asset base in 2025 as bank ramps up lending

National Development Bank PLC (NDB) aims at joining the trillion-rupee asset club in the next five years, with the lender turning more aggressive in loan disbursements on the back of strong capital buffers and liquidity after nearly Rs.10 billion in fresh capital was infused few months ago.  

NDB, which filed its interim results for the June quarter last week, said it had in fact accelerated its pace of lending in the quarter, defying the dampened conditions, which engulfed wide swaths of the economy.

Its gross loans and advances book expanded by a robust Rs.43.5 billion in the first six months of the year, of which Rs.24.9 billion came during the latter three months, reflecting that the bank had changed gears to run at its full steam to make the most of the lower interest rate window that is available.  

The bank, as of June, had Rs.664 billion in assets on a standalone basis and its executive team with the full blessings of its board of directors have chartered their course towards trillion-rupee assets by the end of the financial year ending in 2025, which works out to a little under 10 percent compound annual growth rate. 

The bank’s loans and advances book during the first half of the year has already matched this growth, translating into a nearly 20 percent annualised growth. 

The bank has so far well executed its capital augmentation plan with the recent infusion of Rs.9.46 billion raised via a combination of a rights issue and a private placement with Norfund, the Norwegian Investment Fund for developing countries, bolstering its core capital and the Tier I capital adequacy. 

Given the profile of the financier, the bank is well poised to call for more capital should it require.
“Medium-term capitalisation hinges on the pace of expansion as NDB seeks to cross Rs.1 trillion in assets in 2025, after reaching Rs.500 billion in 2019, ahead of its 2020 target,” Fitch Ratings said affirming the bank’s rating at A +, with a Stable outlook.

Despite numerous warnings against the banking sector’s ability to raise foreign currency funding by ratings agencies and others over the poor country rating, NDB among other banks have raised billions of rupees in foreign currency and the most recent one being the US $ 75 million raised in June from the Development Finance Corporation of the USA, earmarked for on-lend for small and medium businesses and infrastructure development. 

By end-June, the bank’s Tier I and Tier II capital ratios stood at 10.43 percent and 14.73 percent, respectively when the regulatory minimums are at 8.0 percent and 12.0 percent. 

The bank has a strong profit generating capacity, which also got a further fillip from the expanding interest margins this year, as their liability portfolio gets repriced at lower rates. 

In the April-June quarter, the bank reported earnings of Rs.7.08 a share or Rs.1.73 billion, up by a robust 54.5 percent from the same period last year. 

However, there was a slight increase in the gross non-performing loans ratio to 5.63 percent, from 5.35 percent at the beginning of the year, which is nothing unexpected with the fresh restrictions imposed during the quarter, which sent the borrowers reeling.  

As a result, Fitch Ratings expects the bank’s asset quality pressures to persist in the near to medium term. 
“Pressure on impaired loans is likely to manifest across an extended period due to relief measures that halted the recognition of credit impairments and ongoing discretionary restructuring,” they added. 

However, the current relief scheme on the borrowers, the continuation of the bank’s current lending drive and the gradual returning of economic normalcy should ease the asset quality pressures in the bank and the sector as a whole by the year-end, provided no more restrictions or lockdowns on the economy.