NDB reports strong March quarter despite de-growth in assets 

• Bank remains cautiously optimistic on economic recovery post IMF assistance 

National Development Bank PLC reported strong financial performance in the three months to March 2023 and remains cautiously optimistic on the recovery in the economy on the back of potential impact on the capital adequacy of the sector from likely restructuring of the bonds it holds as part of debt restructuring. 
The bank reported net interest income of Rs.8.69 billion in the January – March 2023 quarter, up 39 percent from the same period in 2022 despite the de-growth in assets as it was able to price and re-jigger its assets to make the most of the rising interest rates and yields. 

“The bank effectively deployed the funds raised via deposits in interest efficient products whilst maintaining adequate liquidity, resulting in a net interest margin of 4.01 percent”, the bank said in an earnings release.
This marked a slight improvement in its net interest margin from 4.0 percent by 
the end of 2022. “The prudent balance sheet management, diversified revenue focus and cost optimisation ensured that the bank generated sound returns to its shareholders,” said NDB CEO Dimantha Seneviratne.  
Banks holding of large rupee bond portfolios remain jittery from the likely impact on their capital from possible debt restructuring, 

which already have taken a massive toll from the record high impairments they made on loans and dollar denominated assets last year after the government decided to default on its foreign currency loans. 
“We are cautiously optimistic of the economy’s recovery, particularly as the banking sector remains vulnerable with cascading effects of the economic crisis exerting pressure on sector’s capital adequacy,” Seneviratne said.
“In such a scenario we are striving to strike a delicate balance between ensuring the quality of our balance sheet and supporting our customers as they gradually converge on a path of recovery”, he added. 
The bank pulled back on its growth both as a result of tightened credit standards and the higher rates in 
the economy. 

The loans and advances book of the bank contracted by Rs.43.97 billion in the three months to Rs.535.59 billion while the deposits portfolio too fell by Rs.43.57 billion to Rs.628.74 billion. The bank reported a Stage 3 loan ratio of 7.30 percent, up from 6.24 percent at the end of last year. The Stage 3 loans ratio is somewhat likened to the former gross non-performing loans ratio. 
For the three months ended on March 31, 2023, the bank reported earnings of Rs.2.25 a share or Rs.854.1 million compared to earnings of Rs.1.51 a share or Rs.539.3 million in the same period in 2022, marking a 58 percent increase. 

NDB share ended 30 cents or 0.66 percent lower at Rs.45.20 on Friday. 
The bank set aside Rs.4.83 billion provisions against possible bad loans and other asset losses in the three months, which was a 24 percent increase from the same period in 2022. 
The bank also generated a fee income of Rs.2.22 billion, up 5 percent from a year ago, largely supported by trade, credit cards and digital transactions.

However, the other operating income had Rs.2.2 billion revaluation loss compared to Rs.3.5 billion gain last year coming from the appreciation of the rupee against the dollar in the first quarter, bringing the opposite impact to what was seen last year. 
Norfund, the Norwegian Investment Fund for developing countries held 9.99 percent in NDB, being its single largest shareholder while the government with its constituent parties collectively held a little over 30 percent in the bank as at end March 31, 2023.

Rs.10bn debenture assigned ‘BBB(EXP)(lka)’

Fitch Ratings has assigned National Development Bank PLC’s (NDB: A-(lka)/Rating Watch Negative (RWN)) on proposed Sri Lankan rupee-denominated Basel III-compliant subordinated debentures of up to Rs.10 billion an expected National Long-Term Rating of ‘BBB(EXP)(lka)’ and placed it on RWN. 
The proposed debentures will mature in five years and will be listed on the Colombo Stock Exchange. The bank plans to use the proceeds to strengthen its Tier 2 capital base as well as to support bank’s loan growth. 
The bank expects the proposed debentures to qualify as Basel III-compliant regulatory Tier 2 capital. 

The debentures include a non-viability clause whereby they will convert to ordinary voting shares subject to the occurrence of a trigger event, as determined by the Monetary Board of Sri Lanka. 
Fitch said the final rating is subject to the receipt of final documentation conforming to information already received.