NDB group 3Q net slightly up over core banking but 9-month profit falls

The National Development Bank PLC (NDB) group saw its net profits for the quarter ended September 30, 2016 (3Q16) increasing by 4.5 percent to Rs.881.9 million or Rs.5.34 a share from a year ago as net interest income (NII) rose amid margins coming under pressure and slowing growth in loans, the interim results showed. 
The NDB share ended Rs.1.30 or 0.82 percent higher at Rs.160 at last Friday’s market close. 
The group NII rose by 20.8 percent Year-on-Year (YoY) to Rs.2.29 billion when the net interest margin (NIM) slipped to 2.62 percent from 2.63 percent at the start of the year. 
On a standalone basis, the bank’s loans and receivables growth slowed to little under 6 percent or Rs.12.8 billion during the 9 months. The bank had a total loan book of Rs.227.8 billion by the end of September. 
The growth in loans has slowed down as foreign currency loans came down by around Rs.6 billion due to settlements. 
Among the portfolios, the rupee overdrafts grew by Rs.7.5 billion, housing loans by about Rs.1 billion and credit cards by about Rs.250 million. 
The consumer loans remained static.
At a post-budget forum held last Friday, NDB Chief Executive Officer, Rajendra Theagarajah pointed out the limited discretion in extending loans as stipulated in the budget 2017 which could act against foreign and institutional interest in bank holdings. 
The budget proposed that the banks should allocate up to 50 percent of their new lending to government’s priority sectors such as agriculture, women entrepreneurship etc. In response, Finance Minister, Ravi Karunanayake said it is not mandatory but a request from the banking sector to channel funds into productive sectors in the economy as the banks take the easy route of channeling funds to less productive consumption activities. 
The bank had an asset base of Rs.327. 3 billion, an increase 
of 6 percent. 
Meanwhile, the bank’s deposit base grew by 4.7 percent or just Rs.8.7 billion. It appears that NDB had met with fierce competition 
for deposits from other banks during the period. 
The low cost deposits measured by the current and savings account (CASA) ratio dropped to 23.2 percent from 25.6 percent nine months ago. 
The bank said the improvement in the CASA would remain a key focus going forward. 
The net fee and commission income slipped by 1.5 percent YoY to Rs.739.6 million due to weak income from the group’s capital market cluster.  
During the quarter, the banking group made less provisions for possible bad loans due to provision reversal from general provisions, but total provisions for the nine months rose by 93 percent to little over Rs.1.0 billion mainly due to provisions made against 
few customers. 
The gross non-performing loan ratio edged up to 2.44 percent from 2.43 percent in December 2015 but remained below the industry average of 3.0 percent. 
Meanwhile, for the nine months ended September 30, 2016 the NDB group made a net profit of Rs.1.96 billion or Rs.11.90 a share which a 14 percent decline from a year ago. The NII for the nine months rose by 14 percent YoY to Rs.6.53 billion. 
NDB’s Tier I and Tier II capital adequacy ratios stood at 9.07 percent and 13.10 percent respectively against the regulatory minimums of 5 percent and 10 percent. 
In a new development, during the three months to September 30, Perpetual Treasuries Limited, the primary dealer associated with a couple of controversial bond transactions, has accumulated up to 6.2 million shares equivalent to 3.73 percent stake becoming the 7th largest shareholder in the bank. 
Further, a Perpetual group company, Perpetual Equities Private Limited had another 4.5 million shares or 2.73 percent stake accumulated through margin trading provided by Union Bank of Colombo PLC, bringing the total stake held by the Perpetual group 
up to 6.46 percent. 
At the current market value of Rs.160 a share, this 6.46 percent stake could be valued at 
Rs.1.71 billion. 
The government had little over 30 percent stake in the bank through Bank of Ceylon, Sri Lanka Insurance Corporation and Employees’ Provident Fund.