NDB 1Q top line up; impairment charges hurt profits

National Development Bank PLC and its Group companies has commenced 2016 on a positive note, posting a 20% year-on-year (YoY) growth in gross income. 

In a statement NDB said the Group ended the first quarter with a gross income of Rs. 7,555 million, a Rs. 1,235 million increase over the comparative period of first three months of 2015.

The Net Interest Income (NII) of the NDB Group was Rs. 2,064 million as compared to Rs. 1,984 million, a 4% increase over the comparative period. 

Group net fee and commission income recorded a 13% growth to reach Rs. 765 million for the period, which affirms the bank’s greater focus on fee-based income in a challenging interest rate environment. Net gains from financial investments also grew by 41%YoY. Accordingly, NDB Group’s total operating incomegrew by 7% to reachRs. 3,346 million, as compared to Rs. 3,142million for the comparative period.     

Impairment charges for loans and other losses for the period was a charge of Rs. 546 million as compared to a release of Rs. 64 million in Q1 2015. Individual impairment charges of Rs. 350 million represent specific provisions made for few customers, based on sound judgement and objective evidence.However, a stringent recovery process is being pursued to minimise any significant losses that may arise from such facilities. 

Total operating expenses increased by 10% YoYacross the Group to Rs. 1,723 million. The bank opened six new branches during the first three months of 2016, which increased the premises and establishment costs. Given this expansion in its network, the bank has managed its costs well during the said quarter. The Cost to Income Ratio (CIR) was 46.34% and compares with a CIR of 49.55% as at end 2015.

Group Profit Attributable to Shareholders (PAS) declined by 37% YoY, and ended at Rs. 548 million. The commendable growth in core banking income and the increase in the profit share from Group companies werehowever, negated by the comparatively larger increase in impairment charges.

In terms of Balance Sheet performance, total assets recorded a growth of Rs. 3.6billion from end 2015, to reach Rs. 319 billion as at 31 March 2016. Loans and receivables grew by 3% to reach Rs. 216 billion, whichwas an increase of Rs. 6 billion. Customer deposits grew by 6% at the bank level to reach Rs. 197 billion. It should be noted that in terms of YoY growth, the bank’s total assets significantly grew by 18%, supported by a 23% growth in loans and receivables and 21% increase in customer deposits.

Asset quality as reflected in the Non-Performing Loans (NPL) ratio was 2.49% by the end of the period under review, and compares with a ratio of 2.43% as at the end of 2015. The maintenance of the bank’s NPL ratio at consistently stable levels well below the industry average amidst quantum increases in the loan book is an assured indicator of the bank’s sound risk management endeavours. 

Annualised Group earnings per share (EPS) was Rs. 13.37 for the three months ended 31 March 2016 whilst Return on average shareholders’ funds (ROE) was 7.84%. In February 2016, the bank paid a final dividend of Rs. 4to shareholders for the financial year 2015, which resulted in a total dividend of Rs. 11for the same year.The closing share price at the end of the quarter was Rs. 168.80.

As mentioned earlier, NDB opened six new branches within the first three months of the year, bringing its total branch count to 99. Five of these branches opened were outside the Western Province. NDBChairmanN.G.Wickremeratnecommenting on the bank’s expansion strategies mentioned that it has robust plans to expand its branch network furtherduring the remainder of the year, with special focus on localities in need of assistance for their economic revival.

Furthermore NDB crossed a milestone in the first quarter of 2016 with the launch of its mobile banking facility. NDB’s mobile banking app is one the most advanced mobile banking offerings in Sri Lanka as well as in the region. The bank also further streamlined its e-statements offerings by integrating all banking products including credit cardsand Group company products into a single statement.

Expressing his views on the year ahead, NDBChief Executive OfficerRajendra Theagarajah stated thatfollowing the strong balance sheet growth which the bank achieved during the latter half of 2015, NDB is set on a firm trajectory for enhanced growth in 2016. The bank is committed to superior shareholder returnsthrough profitable growth. The bank will also focus on offering banking services combining further technological advancements to its clientele,for meaningful banking with NDB.