NDB posts solid performance in 1H amidst pandemic

• Pre-tax profits crosses Rs. 6 b (up by 21%), post-tax profits of Rs. 3.9 b (up by 32%)
• Robust growth in fund and fee income bases 
• Cost to income ratio of 33%, continually in low 30% range
• Balance sheet growth – total assets of Rs. 664 b up by 6% YTD, 18% YoY
• Broad-based loan book growth of 10% YTD and 14% YoY – Rs. 487 b
• Deposits crosses Rs. 500 b, growth of 5% YTD and 21% YoY – Rs. 515 b
• Enhanced capital adequacy ratios Tier I – 10.43%, total – 14.73% post equity capital infusion of Rs. 9.5 b

Chairman Eshana De Silva

Director and Group CEO  Dimantha Seneviratne

 National Development Bank PLC, Sri Lanka’s fourth largest listed bank, said yesterday it continued to demonstrate its resilience to external shocks and ability to deliver consistent results in the first half of this year.

It said the review period was marked by months-long travel restrictions imposed to curb the spread of the third wave of the pandemic in Sri Lanka, which affected business momentum. 

NDB Director and Group CEO Dimantha Seneviratne commented that notwithstanding these deepening challenges, the bank stayed in top form in delivering uncompromised value to all its stakeholders, thanks to its agile strategies and committed team.

The banking sector has always played a crucial role in national economic development, and its importance is more pronounced in a situation like this. With the nation-wide vaccination program successfully rolling out there is expectancy of expedited return to economic normalcy. In such a backdrop, NDB has affirmed its focus in safeguarding the interest of three critical stakeholders, i.e. the customers, the employees and the society at large, he stated. This focus has enabled it to maintain a sound equilibrium in its performance, for the benefit of all its stakeholders together with a sense of achievement for the team, he further stated. 

Income and profitability: NDB recorded a total operating income of Rs. 15.4 b, which grew by 19% over six months ended June 2020 (YoY). Operating income was strengthened by net interest income (NII), net fee and commission income and consolidated other non-fund based income, all of which recorded a growth over the comparative period. 

NII, the majority contributor in operating income (67%), grew by 17% to Rs. 10 b. Reflecting the reduced interest rate environment, both interest income and interest expenses declined YoY with the latter posting a larger decline at 18%. 

Deposit portfolio’s improving skew towards CASA base, with over 50% of the fresh deposits growth for H1 2021 over H1 2020 coming from CASA deposits and a significantly improved CASA ratio of 26% (H1 2020: 21%) contributed to reduce interest expenses. CASA base also improved by 54% YoY (Rs. 48 b). 

Resultant annualised net interest margin (NIM) for the period was 3.23% (H1 2020 – 3.25%). NIM continues to be under pressure with possible further relief to be granted to customers in loan repayments, due to the cascading effects of the pandemic. 

Net fee and commission income grew by an impressive 48% to Rs. 2.6 b supported by growth in the loan book (YoY 14%), trade business and digital banking transactions conducted through NDB NEOS platforms. All other non-fund based income, including net gains from trading and de-recognition of financial assets collectively grew by 6% to Rs. 2.4 b.

Impairment charges for loans and other losses for H1 2021 was Rs. 4.2 b, an increase of 31% YoY. Provision charges increased in line with the growth in the loan book and provisions made at both collective and individual levels in response to elevated risks caused by the third wave of the pandemic and other stresses. The regulatory gross non-performing loan [NPL] ratio for H1 2021 was 5.63% (2020: 5.35%) reflecting the wider industry NPL behaviour. The net NPL ratio for the quarter was 3.37% (2020: 3.23%). 

Costs continued to be well managed, benefiting from the bank’s organisation-wide Operational Efficiency and Effectiveness (OEE) improvement programme and strong digital drive. Total operating expenses for H1 2021 was Rs. 5.1 b, with the YoY increase managed at 10%, amidst business volume growth and a host of other customer-centric initiatives. 

Gradual increase in deployment of Robotic Process Automations and workflow solutions in internal processes are delivering their investment dividends, with the increase in controllable costs managed at reasonable levels. NDB NEOS digitised platforms undergo continuous upgrades, propelling the uptake of these digital channels over physical banking for its customers. The resultant cost to income ratio for the period was 33%, remaining at the low 30% range. 

Operating profit before all taxes for the period was Rs. 6.1 b, up by 21% YoY. Total taxes for the period was Rs. 2.2 b, comprising VAT on financial services – which recorded an increase of 16% due to increase in business volumes, and income tax – which reduced by 4% amidst an increase in profits due to the income tax rate reducing to 24% (effective from the prior year) from 28% in the prior year. The effective tax rate for H1 2021 was 36%. 

Accordingly, post-tax profitability enhanced to Rs. 3.9 b, up by 32% whilst profit attributable to shareholders increased to Rs. 4.1 b, up by a notable 73%. NDB Group’s capital market cluster continued to make valid contribution to the overall Group profitability, benefitted by greater opportunities available in the Sri Lankan capital markets. 

Balance sheet performance: Total assets for H1 2021 was Rs. 664 b, up by 6% over 2020. On YoY terms this was a growth of 18%. Loan book growth was broad-based, to Rs. 487 b, a YTD growth of 10% and YoY growth of 14% (quantum of growth – Rs. 43.5 b and Rs. 58.2 b respectively), with lending increasing to all segments.   

On aspects of funding, the bank’s deposits base crossed the Rs. 500 b mark for the first time with deposits closing in at Rs. 515 b. This was an YTD growth of 5% and YoY growth of 21%, which translated to quantum of Rs. 25 b and Rs. 87.7 b respectively. CASA deposits grew by 11% YTD (Rs. 13 b) to Rs. 136 b. 

The period under review booked a total capital infusion of Rs. 9.46 b, comprising Rs. 8 b raised through the Rights Issue and Rs. 1.46 b raised through the Private Placement with Norfund – the Norwegian Investment Fund for developing countries, strengthening Tier I equity capital of the bank. NDB also secured $ 75 m from the Development Finance Corporation of the USA as a long-term funding line towards lending to SMEs and infrastructure development of the country. 

Key performance ratios: Return on equity of the bank for H1 2021 increased to 13.81% (2020: 13.13%) whilst the same at the Group level was 13.91% (2020: 11.20%). Pre-tax ROA of the bank was 1.68% (2020: 1.59%) and of the Group was 1.79% (2020: 1.58%). Earnings per share of the bank was Rs. 28.89 (2020: Rs. 23.77), whilst the same for the Group was Rs. 30.96 (2020: Rs. 21.99). 

The net asset value per share of the bank and the Group were Rs. 161.48 and Rs. 170.94. On capital adequacy, Tier I capital adequacy ratio and Total capital adequacy ratio of the bank were 10.43% and 14.73% respectively. The same ratios for the Group were 10.83% and 15.03%. Liquidity coverage ratio – Rupee, Liquidity coverage ratio – All currency and Net Stable Funding Ratio were 204.01%, 184.31% and 116.81% respectively. All these ratios were well above the regulator stipulated minimum requirement levels, with capital adequacy ratios having enhanced post Tier I capital infusion as explained above – reflecting the strength, stability and sufficient liquidity of the bank. 

Support extended to COVID-19 affected customers and other aspects of performance: The bank’s support to its pandemic hit customers to emerge strong continues, with various moratoria and concessions, together with strong advisory support from its relationship managers, including the ‘NDB Jayagamu Sri Lanka’ proposition. 

NDB continued its digital drive unabated by the pandemic. Enabling CRIB report and CRIB score downloads in the NEOS mobile app and commencing the development of video -Know-Your-Customer (vKYC) which will take virtual banking to a new level using AI are two of the ‘first in the industry’ launches by NDB. 

‘NDB Cares,’ NDB’s structured response in support of employees and the society at large under the theme ‘Together with Humanity…Stronger with Positivity,’ continued its mission, which included donations to the healthcare sector and communities in need, amongst other initiatives. 

With the completion of Tier I capital infusion netting Rs. 9.5 b, and further funds secured through credit lines, NDB is poised for accelerated growth as market opportunities warrant. This growth will be in alignment with the bank’s own strategic aspirations as well as the country’s broader needs to propel economic prosperity, which include the SME sector, thereby fortifying NDB’s role as a key contributor in the nation’s development journey.