NDB reports subdued 1Q profits over multifold increase in provisions

The profit cratered at National Development Bank PLC (NDB) in the quarter ended March 31, 2022 as the bank’s provisions against possible loans and other losses rose many-fold in expectation of dourer financial conditions going forward. 
The development lender turned commercial bank with fully fledged capital market operations reported earnings of Rs.1.51 a share or Rs.539.3 million for the January - March quarter compared to Rs.10.16 a share or Rs.2.36 billion in the same period in 2021.
The earnings between the two periods translated into a sharp 77 percent plunge. 
The multi-fold increase in provisions made against possible loans and other losses was the predominant reason for the weaker performance in the quarter.  
The bank set aside a whopping Rs.6.36 billion as total provisions in the quarter. This is nearly thrice the Rs.2.19 billion provided by the bank in the corresponding period in 2021.  
While the bank did not provide a breakdown of what contains its total provisions it said a significant proportion consists of the provisions made against its holdings of foreign currency denominated government securities and elevated provisions made on the loans which are now under stress after the economy went into a terrible tailspin. 
This also comprises the exchange impact on the impairments, 
the bank said. 
The banking sector is bracing for the toughest ever operating conditions with soaring interest rates, inflation and weakening exchange rate, making the future trajectory extremely uncertain and volatile. 
Its fallout is expected to be felt in the banks’ impaired loans, growth, earnings and thereby their capital. 
The bank reported its impaired loans ratio which is equivalent to gross non-performing loans ratio at 4.40 percent, slightly improved from 4.55 percent in December 2021. 
Meanwhile, the bank also reported a thumping loss of Rs.1.12 billion on trading compared to a corresponding quarter profit of Rs.460.1 million. 
The other operating income saw rising to Rs.3.46 billion from Rs.760.5 million in the year ago period, likely consisting of revaluation impact of its assets and liabilities portfolios at the exchange rate at the balance sheet date. 
As a result, the bank’s loans and advances book reported  Rs.53.9 billion or 10.2 percent increase while the deposits had a Rs.48.1 billion or 8.71 percent growth. However the rupee loans grew by a much more modest Rs.10.1 billion or 2.31 percent. 
The rupee deposits in fact reported de-growth of Rs.13.1 billion reflecting that the deposit book was inflated almost entirely by the 
revaluation impact. 
Meanwhile, the bank reported a net interest income of Rs.6.24 billion in the quarter, recording a 21 percent increase from the same period last year as it stood to benefit from the rising rate environment. Its net interest margin stretched to 3.43 percent from 3.25 percent at the end of 2021. 
The fee incomes also rose by 15 percent to Rs.2.12 billion. 
The bank’s capital ratios are above the regulatory minimums but had come down sharply from December 2021 levels due to the steep increase in the risk weighted assets caused by the exchange 
impact.