NDB records solid growth for June quarter

Some solid growth in new loans and better margins lifted the profits of National Development Bank PLC (NDB) but the hefty provisioning against the possible bad loans and the resulting asset quality weakening stood out by June 30, 2018. 

Releasing its interim accounts just before the start of trading yesterday, NDB said it reported earnings of Rs.7.15 a share or Rs.1.27 billion for the April-June quarter (2Q18), up 70 percent from the same period last year. 

The net interest income was up 41 percent year-on-year (YoY) to Rs.3.51 billion, supported by better margins. The bank managed to stretch its net interest margin to 3.43 percent, from 3.00 percent in December 2017. 

The fees and other incomes rose by 17 percent YoY to Rs.947 million, which was also assisted by the bank’s capital market and investment banking business. 

However, the profits of this business segment declined by 5.5 percent YoY to Rs. 146.6 million for the six months ended on June 30, 2018, due to weak capital market and investment banking activities during the period. 

NDB’s capital market cluster runs the country’s largest investment bank. 

Meanwhile, for the six-month period, the bank reported earnings of Rs.13.64 a share or Rs.2.42 billion, up 63 percent from the same period, last year. 

The net interest income rose 41 percent YoY to Rs.6.9 billion and the fees and commission income grew by 23 percent YoY to Rs.1.87 billion. 

The main drag on the bottom line was the hefty individual impairment provision, which rose to Rs.749 million, from Rs.338 million during the same six months in 2017. 

Further, the collective impairments rose to Rs.544.2 million, from Rs.195.6 million a year ago.  
This is despite the bank expanding its loan book by Rs.27.9 billion for the six months. 

Poor asset quality had a strain on the bank’s non-performing loans as the non-performing loan (NPL) ratio rose to 2.54 percent, from 1.83 percent in December 2017. The industry NPL ratio hovers around 3.3 percent levels. 

Meanwhile, the bank had raised Rs.23.8 billion in new deposits and a further Rs.8.7 billion in term borrowings. 

Lately, NDB was seen quoting off market rates to woo deposits as the bank appears to be gearing up for aggressive growth. 

This June, NDB announced a rights issue to raise Rs.6.2 billion in fresh equity to meet BASEL III regulations on capital requirement. 

By June 30, 2018, the government had a 30 percent stake in NDB through Bank of Ceylon, the Employees’ Provident Fund and Sri Lanka Insurance. 

The controversial primary dealer, Perpetual Treasuries Limited, the licence of which is currently under suspension, had a 4.45 percent stake in NDB being the seventh largest shareholder. 

The Perpetual group company, Perpetual Equities (Pvt.) Ltd, also had 1.29 percent in NDB being the 18th largest shareholder of the bank.