NDB commences 2021 on positive note. Ups post-tax profitability by 34%

National Development Bank PLC, the reigning winner of The Best Bank in Sri Lanka 2021 of Global Finance USA and The Bank of the Year 2020 of The Banker UK, achieved sustained results for the first quarter ended 31 March 2021, amidst challenging conditions.

Commenting on this performance, the Director/ Group Chief Executive Officer of NDB – Dimantha Seneviratne noted that the period was marked by two fundamental changes, one – the prospect of prolonged low interest rates, and the other – greater inclination towards digital engagements from our customers.

NDB strategized in response to these changes well, which ensured continued support to our customers as well as preserved returns to our shareholders. The NDB Group’s new strategic plan, which was launched in October 2020, has placed us on a steadfast growth trajectory amidst the turbulences.

“We carry good momentum to the second half of the year, which seems steeper in terms of challenges, with the outbreak of the third wave of the pandemic in Sri Lanka and worsening situations across Asia, which will have a cascading impact on the local economy. The Bank will fully deploy prudent and timely strategic initiatives in response to the pandemic, the development and impact of which is yet to be fully gauged”, he noted.

The Bank’s total operating income posted a growth of 23% to LKR 8.2 Bn, supported by enhanced net interest income (NII), fee income and other non-fund income bases. Although interest income dipped by 8% due to lower interest rates, this was more than offset by a larger dip in interest expenses of 20% leading to a NII growth of 18% to LKR 5.1 Bn. This also led to a broadly stabilized net interest margin of 3.29% compared to 3.07% of 2020. Driving NIMs was the CASA base of LKR 129 Bn in Q1 2021 growing impressively by 58% over Q1 2020 (quantum of growth – LKR 47 Bn), which also raised the CASA ratio from 20% to 26%. Fee and commission income recorded a healthy growth of 29% to LKR 1.3 Bn due to larger credit volumes across all segments and increased transactions routed through NDB NEOS digital platforms. Net gains and trading also posted a record increase of 116% over Q1 2020 to LKR 460 Mn, reflecting the forex income gained during the quarter.

Impairment charges for loans and other losses for Q1 2021 was LKR 2.2 Bn, an increase of 70% 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 pandemic and other stresses. The regulatory gross non-performing loan [NPL] ratio for Q1 2021 was 5.40% (2020: 5.35%) reflecting the wider industry NPL behavior. The net NPL ratio for the quarter was 2.96% (2020:3.23%). The Bank is cognizant of further potential stresses on asset quality stemming from the third wave of the pandemic, and has strengthened its risk management framework to mitigate and manage the impact.

On total operating expenses, same was LKR 2.5 Bn for Q1 2021, a 4% increase over Q1 2020.

Within this, the Bank continued to manage a reduction in controllable expenses compared to Q1 2020 amidst considerable business growth and various initiatives carried out. The resultant cost to income ratio for the quarter was 30.9% – one of the best in the industry as well as amongst other corporates. This ratio has been on a significant improvement from a high of 49% in 2016, thanks to the increase in banking revenue in line with the Bank’s strategic plans, coupled with conscious and concerted cost management initiatives and productivity enhancement measures, which include digitization and automations.

Accordingly, operating profit before all taxes for the period was LKR 3.5 Bn, an increase of 19%. Total taxes for the period was LKR 1.1 Bn, comprising VAT on financial services and income tax, with income tax rate reducing to 24% from 28%. The resultant effective tax rate for Q1 2021 was 33%.

Post-tax profitability enhanced to LKR 2.3 Bn, with a solid growth of 34% whilst profit attributable to shareholders was LKR 2.4 Bn, up by an impressive 90%, complemented by improved performance of the NDB Group’s capital market cluster, making up the unique financial service powerhouse in Sri Lanka.