NDB reports higher second quarter profits despite pandemic effects

• Gains from G-Secs sale and absence of NBT and DRL help bottom line
• Provide moratoria for about 40% of bank’s total loans

The National Development Bank PLC (NDB), like any other lender felt the effects of the pandemic, that came by way of loss of revenues from loans subject to moratoria, compressed margins amid falling interests rates, higher provisions against possible bad loans and low business volumes as nearly half of the June quarter was in lockdown. 

But the lender managed to record higher bottom line in the June quarter (2Q20) thanks to capital gains from sale of government securities and the removal of taxes by the government. 
The bank had to forgo interest income as much as Rs.626 million for the three months ended in June 30 as the bank gave moratoria on Rs.170 billion of loans, which amounted to 40 percent of its total loans. 

This effect wasn’t reflected in the net interest income as the bank recognised this interest income under other impairment charges, as per the financial reporting rules, NDB said. 
Hence, the bank reported a net interest income of Rs.4.54 billion for the three months under review, slightly up from Rs.4.06 billion in the comparable period in 2019. 

However, NDB’s margins came under pressure as the bank reduced its lending rates in response to easing of monetary policy, while the overall business volumes fell substantially. 
The bank gave only Rs.4.1 billion of loans during the quarter compared to Rs.15.5 billion worth loans in the preceding quarter ended on 
March 30. 

NDB said in the two months to July, it disbursed Rs.4.5 billion under Saubhagya refinance scheme to support the pandemic-affected businesses, out of Rs.7.0 billion approved loans. 
The loans under this scheme are granted at 4 percent out of Central Bank funds borrowed at 1 percent by the banks. 

The bank also launched its own loan scheme out of its own funds to provide finance to SMEs and inventors who may require medium-term funds at lower rates. The bank provided Rs.1.88 billion for possible loan defaults for the quarter, the bulk coming from general provisions compared to Rs.1.09 billion in the comparable period last year. 

 This year’s provision also includes the interest concessions granted under the moratoria. The bank reported a gross non-performing loan ratio of 5.40 percent on its loan book of Rs.428.8 billion, up from 4.77 percent in December 2019. 

Meanwhile, the bank’s deposits grew by Rs.13.5 billion during the three months, a phenomenon seen across the banking sector proving the fact that individuals and companies left money in banks, as the former had limited spending options during lockdowns while the latter was conserving cash as remaining liquid amid a crisis is the top most priority.  NDB in July announced plans to raise capital up to Rs.6.5 billion via a debenture to bolster its Tier II capital ratio while supporting loan growth. 

This perhaps is a part of the bank’s medium-term capital augmentation plan as the bank retired its Rs.10 billion debenture issue in June issued in 2015 for five years.  The bank reported earnings of Rs.5.06 a share or Rs.1.12 billion for the quarter under review, compared to Rs.4.01 a share or Rs.781.9 million in the comparable period in 2019. 

The absence of Nation Building Tax (NBT) on financial services and the Debt Repayment Levy (DRL) helped NDB’s bottom line while the bank sold government securities resulting in a capital gain of Rs.797.7 million for the quarter compared to a gain of Rs.303.7 million in the year earlier period.