NDB Group posts Rs.11bn pre-tax profit

Gross income saw a 20 percent increase over the financial year 2022

NDB Group, comprising NDB Bank as the parent and its subsidiary companies, posted a pre-tax profit of Rs.10.9 billion, whilst at bank level, the pre-tax profit was Rs.10.1 billion.
Profitability mirrored solid core banking performance, which led to healthy improvement across key income categories. 
Gross income saw a 20 percent increase over the financial year 2022 (year-on-year (YoY) growth) to Rs.132.3 billion. Interest income enhanced by 22 percent to Rs.119.4 billion, with interest expenses rising by 30 percent to Rs.87.4 billion, leading to a net interest income of Rs.31.9 billion, a YoY growth of 4 percent. The resultant net interest margin of the bank was 3.96 percent. 

Market-wide interest rates came down from their historic highs, following policy rate cuts netting 650 basis points by the Central Bank, whilst the average prime lending rate dipped by approximately 16 percentage points during the year. The net fee and commission income increased by 14 percent to Rs.7.2 billion, enhancing the dynamism of the bank’s revenue mix. 
Transaction banking drive across all business segments, particularly trade-related services and greater uptake of the bank’s digital platforms, bolstered the fee income amidst the loan book contraction. The total of net gains from trading, net gains from financial assets at fair value through profit or loss and net gains from derecognition of financial assets amounted to Rs.8.7 billion, a notable improvement over 2022, due to the variation in the exchange rate and interest rates compared to the prior year. 
The impairment charges for the financial year netted Rs.21.1 billion, a YoY reduction of 28 percent, primarily due to the higher impairment provisions made for FCY Investments in the same period of 2022. Adopting a prudent basis, the impairment charge for loans and advances increased over the corresponding period.  

The total operating costs for the period was Rs.13.7 billion, a YoY increase of 20 percent. The general increase in price levels, particularly energy and foreign currency-denominated expenses, drove the costs up. The resultant cost to income ratio was 30.4 percent and compared well within the industry. 
Process automations leading to lesser resource usage and greater efficiencies, increasing shift of client transactions to digital platforms and conscious assessment and rationalisation of discretionary expenses, particularly as per directions issued by the Central Bank, were key contributors in curtailing the cost increases. Taxes netted Rs.4.7 billion, comprising taxes on financial services of Rs.2.7 billion and income tax of Rs.2.0 billion. 

Balance sheet performance, liquidity and capital adequacy

NDB’s total assets stood at Rs.780 billion at the closure of the year, whilst the group total assets were Rs.787 billion and translated to a 6 percent reduction over 2022, predominantly attributable to the appreciation of the Sri Lankan rupee over 2023 compared to the severe depreciation seen in 2022. The loan book followed a similar trend, closing in at Rs.496 billion, a YoY contraction of 14 percent. The loan book was affected by the dual factors of appreciating currency and subdued demand for loans on account of high interest rates and low economic activity in the country. 

Customer deposits for 2023 was Rs.616 billion, a YoY reduction of 8 percent, yet again with the reduction partly attributable to the appreciation of the Sri Lankan rupee. Notwithstanding the contraction, the balance sheet remained dynamic and resilient, with sound liquidity and capital adequacy. 
The regulatory liquidity coverage ratio (rupee), liquidity coverage ratio (all currency) and net stable funding ratio stood well above the regulatory minimum requirement of 100 percent, at 309.61 percent, 228.58 percent and 142.26 percent, respectively. The statutory liquid assets ratio of 39.02 percent (2022: 27.24 percent) was also well above the regulatory minimum requirement of 20 percent. 

The Tier I and total capital adequacy ratios stood at 11.67 percent (group: 12.22 percent) and 15.90 percent (group: 16.35 percent), well ahead of the regulatory minimum levels of 8.50 percent and 12.50 percent, respectively. NDB fortified its Tier II capital base with a Rs.5 billion infusion of Basel III-compliant listed, rated, unsecured, subordinated, redeemable debentures during the year. 

Investor KPIs and dividends 

Return on average equity and earnings per share for FY 2023 of the bank were 8.03 percent and Rs.13.44, respectively, which compared with 4.75 percent and Rs.7.65 in 2022, thereby posting considerable improvement in returns to shareholders. The same indicators at group level were 8.11 percent and Rs.14.42 versus 4.62 percent and Rs.7.92 in 2022. 
The bank pre-tax return on average assets was 1.25 percent (2022: 0.26 percent) and net asset value per share was Rs.175.60 (2022: 167.16), again reporting notable improvement over the prior year.  The same indicators at group level were 1.34 percent (2022:0.34 percent) and Rs.186.43 (2022: Rs.177.60).