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National Development Bank PLC said yesterday it has recorded Rs. 10 billion Profit before Tax (PBT), the highest-ever PBT in banking operations in its journey of 40 years.
This is a 6% year-on-year growth, affirming its resilience in a challenging market environment that prevailed during 2019.
NDB’s Profit after Tax was Rs. 5.1 b, a reduction of 8% over 2018, impacted mainly by the Debt Repayment Levy (DRL) which came into effect on 1 October 2018. The bank paid additional tax of Rs. 1,003 million via DRL.
The Profit Attributable to Shareholders (PAS), including the performance of the Group companies, was Rs. 4.8 b, a reduction of 7%, over the comparative period impacted by the DRL and subdued performance of the capital markets cluster.
Commenting on the results, NDB Director/Group Chief Executive Officer Dimantha Seneviratne stated that in a year of subdued economic growth, the NDB Group directed focus on optimising its operating models with decisive management interventions aimed at strengthening the Group’s foundation to drive future growth aspirations.
“In that backdrop, we are pleased to note the growth in profitability and simultaneous growth in the balance sheet, where total assets reached Rs. 530 b and advances and deposits each crossed Rs. 400 b. The bank is confident that the overall economy as well as the banking industry will take a positive turnaround in 2020, with further policy stability, tax reliefs given to individuals and corporates including banks and financial institutions, and the relief package extended to SMEs which would act as a stimulus for economic revival.
“Internally, we used 2019 to streamline operations and enhance service capabilities, hence now we are geared for a market revival and have placed greater focus on building staff skills to deliver superior customer experience, internal processes, investment in new IT infrastructure, digital capabilities, etc.,” he stated. 
Operating income which consists of Net Interest Income (NII), Net Fee and Commission income, income from financial investments, Forex profits and other operating income was Rs. 23.6 b, a growth of 10% compared to 2018. NII recorded a growth of 20% over 2018 to Rs. 17.7 b, which was primarily due to growth in the loan book and effective management of the assets and liabilities, amidst a subdued market environment.
Net Fee and Commission Income, derived from the bank’s diversified business segments was Rs. 3.91 b, a YoY growth of 25%, supported by the strong growth in the retail assets and liability base and digital financial services.
Net gains from trading were Rs. 990.2 m, a reduction of 19% over 2018. Net gains from financial investments at fair value through profit or loss was Rs. 3.2 m whilst net gains from de-recognition of financial assets increased by 87% to Rs. 715.8 m, due to proactive interest rate risk management initiatives undertaken in a volatile market environment.
Other operating income saw a reduction of 84% to Rs. 320.3 m resulting from the exchange movement on the revaluation of the foreign currency reserves of the bank, which was due to the appreciation of the Sri Lankan Rupee in 2019 in comparison to depreciation of the rupee in 2018.
The impairment charges for loans and other losses for the year was Rs. 4.2 b an increase of 16% over 2018. The increase in impairment charges was mainly due the increase in the collective provision charge in line with the growth in the loan book. The bank also accounted for provisions at individual levels considering elevated risks due to stressed market conditions.
Other provisions under impairment charges included provisions made for permanent diminution in fair value of investments. The bank will continue to place greater focus on collections and recovery processes to mitigate the impact of impairment charges on its profitability.
The bank’s Non-Performing Loan (NPL) ratio which was on an upward trend since early 2019, reflecting the wider industry scenario, was contained at 4.77% as at 31 December 2019. NDB’s strong risk management initiatives including comprehensive credit evaluation standards, post disbursement follow-ups and underwriting standards have enabled the bank to manage the loan quality amidst challenging macro-economic conditions and industry stresses.
Total operating expenses for the financial year 2019 was Rs. 9.4 b, an increase of 11% YoY. Personal expenses increased by 12% to Rs. 4.9 b primarily due to increase in the staff strength to support business expansion. Depreciation and amortisation of Rs. 525 m increased by 19% mainly due to the investments made in new IT infrastructure in its digital journey, opening up of two phygital branches, NDB NEOS, strengthening network reach through 54 cash recycle machines and the launch of the revamped NDB mobile banking app – NDB NEOS. The resultant cost to income ratio of the bank was 39.9%, a marginal increase from 39.3% in 2018.
The bank’s contribution to the Government via taxes was Rs. 5.2 b, compared to Rs. 5.2 b for 2018.Total tax charge for the year was Rs. 4.9 b, comprising VAT on financial services, Nation Building Tax on financial services, Debt Repayment Levy (DRL) and income taxes. Rs. 1,003 m was incurred as DRL for the year, which was introduced in the latter part of 2018. Overall effective tax rate on the bank’s profits was 49% as compared to 42% in 2018.
NDB’s total asset base stood at Rs. 530 b at the close of the financial year, whilst achieving a historic milestone during the year by crossing Rs. 500 b in total assets. The total asset base grew by 12% over 2018 complemented by the growth in gross loans of 16% to reach Rs. 409 b and the investment portfolio held for statutory liquid assets purposes. At the Group level, total assets was Rs. 535 b, a growth of 12% over 2018.
Loan growth during the year saw a quantum increase of Rs. 56 b and was recorded mainly in the Retail and project financing segments. Customer deposits grew by 17% to reach Rs. 405 b, a quantum increase of Rs. 57.5 b over 2018. The bank’s Retail segment continued to contribute towards improving the granular deposit base, including CASA deposits during the year, whilst the bank experienced an outflow of few large CASA deposits, especially in foreign currency during the first half of the year.
The bank also raised Rs. 5.6 b via Basel III compliant Tier II debentures to strengthen the Tier II capital base during the first quarter of 2019.
On 20 December 2019, the Central Bank of Sri Lanka issued a direction on the framework for dealing with Domestic Systematically Important Banks (DSIBs), which identifies a DSIB based on a relative score. As per this direction, despite crossing the Rs. 500 b asset base, NDB’s regulatory capital requirement remains at 8.5% for Tier 1 and 12.5% for Total Capital. NDB’s capital ratios as at 31 December 2019 were 9.18% and 13.43% for Tier 1 and Total capital respectively, well above the regulated minimum ratios. The same ratios for the NDB Group were 10.15% and 14.20%.
The Return on Average Shareholder Funds (ROE) for the bank was of 13.73% [2018: 17.41%] and the Earnings per Share for the year were Rs. 23.05 [2018: Rs. 28.44]. The same ratios for the Group were 11.59% [2018: 14.26%] and Rs. 21.53 [2018: Rs. 26.33] respectively. Return (before tax) on Average Assets for the bank was 2.01% [2018: 2.22%] and for the Group was 1.97% [2018: 2.17%].
The net asset value per share of the bank improved to Rs. 178.02 from Rs. 166.41 as at 31 December 2018 and the same ratio for the Group was Rs. 195.60 [2018: Rs. 185.49]. The share price closed at Rs. 100 compared to Rs. 106.80 as at 31 December 2018.
During 2019, NDB continued to be recognised with many awards for its excellence in a multitude of areas such as business performance, digital financial services, human relations, quality in financial reporting, sustainability aspects, etc.
Some notable awards won were Winner – Sri Lanka in the World’s Best Consumer Digital Banks Awards 2019 conducted by Global Finance of USA, Best Bank in Sri Lanka 2019 awarded by the AsiaMoney Magazine and the Runner-up at the Best Bank category at the National Business Excellence Awards organised by the National Chamber of Commerce of Sri Lanka for 2019.
Year 2019 was one of sustained growth for NDB as well as one in which the bank demonstrated its proficiency in delivering results to all its stakeholders amidst highly-challenging circumstances. The bank’s rich history of 40 years, its committed and skilled human capital and the intrinsic strength of sound systems and procedures in place have positioned the bank for further enhanced services to the nation and value generated to all stakeholders, in 2020 and beyond.
