NDB’s Financial Outlook revised upwards to ‘Stable’ amidst challenging, volatile economic conditions

National Development Bank PLC’s credit rating was affirmed at A+ (lka) by Fitch Ratings Lanka Ltd. in its latest rating actions on Sri Lankan banking institutions. The Outlook for the Bank was revised to Stable from previous Negative, reflecting Fitch’s expectation of reduced pressure on the Bank’s capitalisation relative to its risk appetite. 

The rating announcement comes at a time when the country’s credit rating was revised downwards to ‘B-/Negative following the severe economic down turn in the aftermath of the COVID-19 pandemic. The Negative outlook at the sovereign level is reflected in the revised outlook of the larger banks as well. In this scenario, the upward revision in outlook while affirming the rating at A+ is an endorsement of the bank’s demonstrated resilience of its diversified business model to unexpected stresses stemming from the COVID-19 pandemic and its ability to weather challenges, enabled by a strong business franchise.

The bank’s rapid response with the onset of the pandemic to enable the smooth functioning of the financial services sector of the country and enable customers to carry out their day-to-day financial requirements helped set a precedence for other banks to follow. The bank introduced mobile ATMs and Banking on Wheels taking the bank to the customers whilst adding to its digital presence with the introduction of its Online Banking portal for added customer convenience during the lockdown period. This demonstrates the bank’s agility in providing innovative solutions in the face of unforeseen circumstances and magnitude.

The bank’s dynamic balance sheet, well diversified in to different sectors with an equitable exposure in multiple segments ranging from retail, SME, corporate and project financing has proven its strength at times of acute stresses. Almost a quarter of the Balance Sheet is in long term project financing facilities which reflects the bank’s expertise in this segment, an attribute which benefits the bank at times of turbulences, given the long tenures of these loans.

The quality of the bank’s loan book which is well preserved over the long term is yet another strength of the bank. The bank’s non-performing loan ratio was 4.78% as of Q1 2020 and is below the industry average levels. The quality of the bank’s loan book will ensure that potential losses arising from the impact of the COVID-19 pandemic is well managed and measures deployed such as rescheduling of loans will be in deed effective. 

Furthermore, at a time that the industry is marked by a low interest regime, the banks that would perform well are the ones that are efficient in their processes. NDB is on a very strong platform in this regard. The bank is presently upgrading its core banking system to the latest available version. The bank has also perfected the deployment of digitised solutions for enhanced internal operational efficiencies. NDB is the first bank to institutionalise the use Robotic Process Automation Technology (RPA) and have a digital workforce working alongside its human workforce. 

RPA has enabled the bank to automate a number of manual processes, enhance efficiencies, drive costs down and redeploy staff effectively in to more fruitful operations. A number of work flow solutions introduced have also led to quick turnaround times hence a speedier service to customers and greater efficiency at the back end. 

NDB’s banking solutions are aptly energised by digitisation and forms a core aspect of the bank’s overall strategy. The NDB NEOS platform offers the bank’s mobile banking app, which is reputed as one of the most customer friendly banking apps in the country, online baking solution and two “phygital branches” the first and the only of its kind in Sri Lanka. In addition to these, we also have a branchless banking proposition dubbed as “Bank2U” which takes banking to the doorsteps of customers. 

Bank2U is an exceptional solution via which the bank has been able to promote financial inclusion and financial literacy through many nooks and corners in the country. Over 70% of the Bank’s transactions are performed digitally, affirming the wide reception and popularity of these modes amongst our clientele.

Deployment of digital technology together with other internal efficiencies have led to the bank maintaining its cost to income ratio at healthy levels. The ratio for Q1 2020 was 36.5% and compares as one of the lowest with peers and industry average. Effective cost management has taken a new form within the bank with a number of novel initiatives being implemented, integrating learning and experiences from the lockdown situation as well. 

NDB, as the fourth largest private bank in the country is on a sustained growth mode. The Balance sheet which stood at Rs. 553 billion on average has grown at 15% over the last five years. The presence of the bank’s franchise marked by a branch network of 113 branches is augmented by a number of other touch points. The unique Feet on Street sales force serving right across the country, over 50 cash recycle machines with added capabilities to withdraw as well as deposit cash, branchless banking proposition available across over 80 localities coupled with digital avenues make NDB omnipresent, with a robust outreach to customers.