NDB Group’s core banking profits increase by 34%

NDB Group’s sustainable core banking profits increase by 34% during the year 2010, recording a Group Profit Attributable to Shareholders (PAS) of Rs. 2 b an increase of 28%, with a Group ROE of 13.67.%, excluding exceptions.

With its roots in cashflow based project and infrastructure financing and having positioned as a licensed commercial bank just a decade ago, NDB Group is now on a springboard to leap into greater heights riding high on its competitive advantage – Knowledge based banking.

The unprecedented portfolio growth of 27%, with loan delinquencies maintained at an all time low of 1.9%, one of the lowest in the Industry, healthy and well structured balance sheet, and an affirmed rating of ‘AA (lka)’ by Fitch Ratings provides its stakeholders the much desired comfort of their investment and future growth potential.  In fact the loans to total assets ratio which increased by 10% to 68% in 2010, makes it evident that the new loans created with the liquid funds will now reap higher returns.

Today the Group is positioned as a unique knowledge hub, with its presence in banking, capital markets and insurance. Backed by a well trained team of professionals, the Group was able to leverage its core competencies to take advantage of emerging opportunities in lending as well as capital markets and insurance that witnessed a most welcome ‘bounce back’ during 2010.

Commenting on the 2010 performance, Chief Executive Officer of NDB Bank Russell de Mel said: “The performance of the Bank as well as the Group during the previous year (2009) was highlighted by significant capital gains made from trading in Treasury Bills and Bonds which was influenced by falling interest rates and also by one off equity gains. Our philosophy is that whilst we seize these opportunities, thus maximising gains and returns, what is important is to sustain the core banking profits.  Therefore, in 2010 the Bank attempted to create a strong business model by improving its core banking income that is sustainable in the long run.”

On an as is basis, the Bank’s Profit Before Tax of Rs. 3.4 b, which is almost flat against 2009, reflects a drop of 6% at Profit After Tax level due to substantial capital gains of 2009 which were exempt from tax.

It is worthy to note that there has been significant improvement in the core banking profits throughout the quarters as well, which has had a direct impact on the improvement in the full year returns, thus confirming that its core business is sustainable under the emerging economic conditions.  Despite falling interest rates and higher returns on alternate investments the Bank’s deposit base recorded a healthy growth of 19% from Rs. 49 b to Rs. 59 b during the year against an industry growth of 15.6%. It is noteworthy that the Bank’s Current and Savings Accounts (CASA) ratio has also improved from 23% to 29% with the build up of granular savings and cash management offerings.

On a quarterly basis, both the lending portfolio as well as the deposit portfolio has shown significant growth potential during the fourth quarter, as new lending initiatives gathered momentum, thus providing a sound base for future earnings.

The Bank’s Tier 1 Capital Adequacy Ratio of 12.79% and a Tier 1 & 2 ratio of 14.82% are well in excess of the regulatory minimum of 5% and 10% respectively, providing the much needed capital to support future growth plans.

The Bank paid an interim dividend of Rs. 4 per share during the fourth quarter of 2010, out of the profits recorded during the year.

Non Performing Loans

Prudent underwriting policies and well defined risk acceptance criteria helped the Bank to maintain a high quality loan portfolio, improving its Non Performing Loans (NPL) ratio to 1.9% as at December 2010 from 2.5% an year ago, which compares well against the current Industry ratio of 5.3%. The provision cover on NPLs is at 76% with an Open Loan Position of 2.86%, signifying the minimum amount of stress on the Bank’s equity, on account of un-provided delinquencies. The overall provision cover is at 96%.

Operating costs

Despite measures initiated to increase capacity and outreach, improved internal efficiencies   adopted throughout the Bank, resulted in a healthy Cost to Income Ratio of 45% for the period, which compares favourably with the industry ratio which is around 47%.

SME lending

The year also witnessed greater focus on the SME sector, the backbone of a growing economy. With limited footprint and outreach, the SME sector recorded a significant portfolio growth of 63% during the year 2010.

In addition to the traditional lending forms to SMEs the Bank also intermediated in facilitating industry verticals linking the small time producers with the large scale distributors and vice versa.

NDB has also taken the far sighted initiative of moving more towards customer centric cashflow based lending approach as opposed to the traditional collateral based lending creating greater inclusiveness at the bottom of the pyramid.

With a view of facilitating the development of sustainable livelihoods for those who are not within the mainstream of banking, NDB Bank introduced its SME banking scheme, ‘NDB Divi Aruna’ in June 2010 and has since extended this to several districts across Northern, Eastern and Southern Provinces of the country.

Corporate and retail banking

Project and infrastructure financing has been the Bank’s unique offering with three decades of expertise, where the Bank aggressively pursued the investment opportunities brought about by post conflict reconstruction and economic revival.

The commercial banking business actively explored growth opportunities in new market segments this year, expanding its product offering, synergising with other business streams. The home grown solution on electronic banking was continuously developed and customised to suit the changing needs of transactional banking.  On the retail front, the Bank launched a national savings drive taking the core concept of ‘savings’ beyond monetary measures, to the extent of cutting down unnecessary wastage in daily life and saving national resources.

The Bank also expanded its physical branch network, establishing its footprint in several new geographies with new branch openings and relocations. Customer accessibility was further enhanced with the addition of more touch points through an ATM sharing agreement with Sampath Bank. Completing the retail asset portfolio, NDB credit cards were launched this year equipped with the latest chip enabled technology for greater convenience and security. The Bank also strengthened its offering on remittances, establishing overseas presence in captive markets through partnerships with other banks and exchange houses.