NDB sees 1Q pre-tax profit expand 31% YoY to Rs.1.8 bn

NDB recorded a pre-tax profit of Rs. 1.8 billion for the three months ended 31 March 2024, an increase of 31 percent over the same period in 2023 (YoY). 
Total operating income for the 1Q24 period was Rs. 10.1 billion, a YoY increase of 8 percent, driven by net interest income of Rs. 8.1 billion, net fee and commission income of Rs. 1.8 billion and other income of Rs. 208 million. 

Commenting on the performance, NDB Director/ Chief Executive Officer Kelum Edirisinghe said the bank continued to face challenges on relatively low credit demand due to subdued 
economic activity. 
“Strong alignment to our strategic blueprint built on three core focus areas viz. optimising cost of funds, enhancing fee based income through transaction banking and enhancing portfolio quality enabled us to withstand the challenges and deliver consistent value to our shareholders,” said Edirisinghe in a statement that accompanied 1Q24 performance.

The twin impact of a descaled loan book, repriced down in tandem with declining anchor interest rates as a part of the relaxing monetary policy of Central Bank of Sri Lanka led to a YoY reduction in net interest income.

The Bank’s concerted efforts in managing cost of funds led to an improvement in the net interest margin to 4.23 percent, from 3.96 percent in 2023 thereby easing out the pressure from reduced interest income. Other non-fund-based income posted a notable increase of 118 percent mainly driven by income categories of net gains from financial assets at fair value through profit or loss and net gains from derecognition of financial assets.
With the appreciation of the Sri Lankan rupee, the bank’s foreign exchange reserves of the FCBU book recorded a revaluation loss amounting to Rs.1.3 billion, accounted for under the Other Income category.

Analysis of financial performance 

Impairment charges for the quarter netted Rs.4.4 billion, a decrease of 9 percent compared to the same quarter in 2023.  Impairment (Stage 3) to Stage 3 loans ratio improved to 44.74 percent, from 41.11 percent in the financial year 2023, reflecting further build-up of impairment to absorb the potential losses in the Stage 3 category, as part of NDB’s prudent credit risk management efforts. Impaired loans (Stage 3) ratio was 8.27 percent, a marginal movement from 8.58 percent in the financial year 2023. NDB continued to maintain provisions on investments in foreign currency bonds, for the expected International Sovereign Bond restructuring to be announced by the government of Sri Lanka during the year. 
Total operating costs for the quarter was Rs.3.9 billion, within which the increase in the other expenses category comprising administration, marketing, etc. susceptible to price level increases was contained at 11 percent – a direct outcome of strong cost discipline maintained across the bank. The bank’s capital and discretionary expenses of certain expense classes above a set threshold continued to be governed by a board subcommittee in ensuring the effectiveness of such expenses on the overall performance of the bank.  

Balance sheet performance, liquidity and capital adequacy

NDB’s total assets stood at Rs.757 billion as at March 31, 2024, a 3 percent degrowth compared to the total asset base as of December 31, 2023 (YTD). Total assets behaved in close congruence to overall market direction, where negative growth continued but at a slower pace. Gross loans to customers also decelerated at a slower pace, at 2 percent YTD and closed in at Rs.486 billion. Customer deposits stood at Rs.614 billion, with a marginal decline of 0.2 percent. Within the total deposits, rupee deposits grew by 4 percent, whilst foreign currency-denominated deposits declined by 12 percent attributable to the appreciation in exchange rate, which if excluded, would have led to a growth. Total assets at group level stood at Rs.765 billion. 

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 336.22 percent, 282.80 percent and 152.15 percent, respectively. The statutory liquid assets ratio of 41.67 percent was also well above the regulatory minimum requirement of 20 percent, which is on a continually increasing trend. Tier I and total capital adequacy ratios by the end of 1Q 2024 stood at 11.93 percent (Group: 12.49 percent) and 16.02 percent (Group: 16.48 percent), ahead of the regulatory minimum levels of 8.5 percent and 12.5 percent, respectively. Prudent measures adopted in balance sheet management enabled the bank to maintain sound liquidity and capital adequacy. In April 2024, NDB announced its plans to raise Tier II capital via Basel III-compliant listed, rated, unsecured, subordinated, redeemable debentures within a one-year time frame commencing from the date on which the bank will obtain shareholder approval for the issuance of such debentures (comprising multiple issuances), of up to Rs.10 billion, which will be further strengthening its capital position. 

Investor KPIs and dividends 

Return on average equity and earnings per share for 1Q 2024 were 4.51 percent (Group: 4.88 percent) and Rs.7.92 (Group: Rs.9.11), respectively. Pre-tax return on average assets was 1.03 percent (Group: 1.13 percent) and net asset value per share was Rs.175.69 (Group: Rs.186.86). 

Outlook

As the economy continues on the recovery mode, the bank remains well poised in catering to emerging financial and advisory needs of the country and its people. The clearly articulated three-pronged strategy spanning the mid-term with adaptability to evolving socio, political and economic landscapes will guide the bank towards shareholder wealth maximisation and value creation.