NDB plans Rights Issue to meet Basel 3 requirements

From left: NDB Capital Holdings CEO Vajira Kulatilaka, NDB Group Chief Financial Officer Lalith Fernando, NDB Director/CEO Dimantha Seneviratne, NDB Chairman Ananda Atukorala, NDB Corporate Banking Vice President Buwaneka Perera and NDB Personal Banking and NDB Branch Network Management Vice President Sanjaya Perera

• Expects Rs. 3-6 billion from the Rights Issue
• Says will make a debenture issue to meet insufficient funding from shares
• Retail and SME sector will be targeted for credit growth

By Rahel Kirinde

NDB CEO Dimantha Seneviratne last week revealed that the Bank would go for a Rights Issue to raise funds to meet Basel 3 requirements.

“We will be approaching the market towards the second half of this year to finance our capital necessities in line with Basel 3 requirements and our ambitious growth plans of becoming a Systemically Important Bank by 2020,” he said.

NDB Group CFO Lalith Fernando said in the event of funds earned through the Rights Issue being inadequate, the Bank will launch a debenture issue.

“Right now our focus is on raising equity capital to fulfil Tier 1 requirements because we’re comfortable within the Tier 2 and the total capital level,” he said.

Under the Basel 3 minimum Tier 1 capital requirements stand at 10.5% and minimum total capital requirement stands at 12.5% making the minimum Tier 2 capital requirement 2% of the total risk based assets.

Fernando said, “If we grow is much faster than expected we will need to draw capital from the market by issuing debentures but it will most likely happen towards the end of the year or next year.” 

He mentioned that they are still assessing what the size could be but either way fund raising will happen this year in the form of a Rights Issue followed by a debenture issue.

NDB CEO Seneviratne highlighted the Bank’s key performance in 2017. The Bank PAT was a significant Rs. 4.35 billion an increase of 37% over 2016, while the group profit attributable to shareholders is Rs. 3.49 billion, an increase of LKR 30% over 2016.

Furthermore, the Bank saw a total assets growth of 15% up to Rs. 383 billion, including loans and receivables growth of 20%, to Rs. 274 billion and a quantum growth of Rs. 46 billion which resulted in a growth rate ahead of industry loan growth. The Customer deposits growth of 34% to Rs. 273 billion was seen, a quantum increase of Rs. 70 billion. 

Among other Key performance indicators, Net Interest Margin of the Bank improved from 2.64% in 2016 to 3.0% in 2017, strengthening the net interest income. Cost to income ratio improved from 49% in 2016 to 45% in 2017, as a result of the Bank’s sound cost management practices. NPL ratio also improved to 1.83% from 2.63% in 2016, which was well below the industry NPL average.

In terms of credit growth Seneviratne said the main focus will be on the retail and SME sector as opposed to previous years where corporate and project financing was targeted. 

“Corporate and project finance is also going to grow by roughly 12-15% but the retail and SME sector is expected to grow by much more,” he added.

 “Currently loans given to the corporate and project finance sector stand at 55% and loans given to retail and SME sector stand at 45%; by 2020 we expect this to be the other way around.”

Pic by Ruwan Walpola