Rights issue, private placement to almost double NDB’s loan growth: First Capital

• First Capital Research forecasts NDB’s loan book to expand by 14% in 2021 and 2022
• A 14% growth translates into Rs.62bn in net credit, nearly double the amount NDB gave in 2020 

First Capital Research (FCR) said the new capital injections will give National Development Bank PLC (NDB) the much sought-after heft to expand its loan book by as much as 14 percent in the fiscal 2021 and 2022, nearly doubling the rate the bank expanded its loans in the pandemic-stricken year in 2020. 

In an equities report issued on the heels of the Rs.8.0 billion rights issue and Rs.3.0 billion private placement to Norfund, the research firm said that the bank intends to utilise the entirety of its fresh capital to expand its loan book in the ordinary course of businesses, including its continued expansion in the micro and small and medium enterprise portfolio. 

“We expect NDB to record a loan growth of 14 percent in 2021E and 2022E, above the private sector credit growth expectation of 12 percent,” FCR said in an equities note titled ‘NDB’s right issue to accelerate the growth engine’. 
A 14 percent growth in the bank’s loan book translates into Rs.62 billion worth of net credit, nearly double the amount it gave in 2020. 

While a 14 percent growth in a bank’s asset base by itself is massive, there are certain small banks that seek to expand their loan books by as much as 20 percent in 2021, riding on the wave of low interest rate-driven spike in demand for private credit. 

In an early sign of accelerating demand for private sector credit, March saw Rs.112.2 billion in fresh credit being disbursed by the licensed commercial banking sector alone, up from Rs.79.4 billion in February. 

However, it is yet to be seen whether this momentum got derailed in April, due to the fresh restrictions imposed on certain economic activities, souring the consumer and business sentiments. 

NDB, being an aggressive lender since 2017, which beat earnings year after year, is looking at turning acquisitive in the next five years through 2025, as both its Chairman and Chief Executive Officer in March hinted that they would remain open for right opportunities to pursue inorganic growth to solidify its position as a leader in the financial services sector. 

NDB’s interim results for the March quarter are expected shortly and the bank is expected to have expanded its loans at a faster pace, as the resurgent economy sparked fresh demand for loans for consumption and business growth. 

Meanwhile, FCR also expects NDB to improve its margins slightly in the short term when loan growth accelerates, which in turn improves the bottom line. 

It is common for banks to slightly improve their net interest margins, even in a historically low interest rate environment, as instead of parking their enormous amount of excess liquidity in government securities and other financial assets, due to the absence of a commensurate growth in loans in 2020, banks now have the opportunity to give such funds as loans, which generally generate a higher yield than the other financial assets.