National Development Bank PLC recorded sound financial results for the first quarter ended March 31, prior to the onset of the COVID-19 pandemic which has subsequently led to exponential economic stresses at home and the world over.
In such a backdrop the Bank increased its operating income to LKR 6.6 Bn by 11%. Post-tax profitability was LKR 1.7 Bn up by 27%, partly benefiting from tax removals introduced by the Government. The Bank’s Balance Sheet also expanded by 4% to LKR 553 Bn, which translated to a quantum increase of LKR 24 Bn.
Dimantha Seneviratne – Director/ Group Chief Executive Officer of NDB stated that the world is currently experiencing the most dramatic economic downturn in its history caused by the COVID-19 pandemic, with distinct challenges posed on the financial services sector such as stressed liquidity, capital adequacy, asset quality and profitability.
Seneviratne went on to say that the NDB results for Q1 2020 is a reflection of the Bank’s delivery of far-sighted strategies. “Though we witnessed normal volumes in Q1 up to mid-March, we continue to witness challenges in certain sectors, hence the need for provision build-ups and getting adjusted to the new normal from Q2 onwards.”
Profitability Total operating income which consists of Net Interest Income (NII), Net Fee and Commission income, income from financial investments, Forex profits and other operating income increased by 11% YoY to LKR 6.6 Bn.
Net fee and commission income recorded an impressive increase of 19% to LKR 1 Bn benefiting from the strong growth in the retail assets and liability base and uptake in digital financial services.
Net interest income [NII] was LKR 4.3 Bn, a negative growth of 7%, partly due to the increase in interest expenses stemming from fresh quoted debentures issued in Q1 2019 and the reduction in margins in line with regulatory policies.
A narrowing net interest margin of 3.22% [compared to 3.53% in 2019] also contributed towards this dip in NII, which is a wider reflection of the drop in benchmark market rates during the quarter. The significant increase in other operating income to LKR 835 Mn attributed to exchange gains on the revaluation of the foreign currency reserves of the Bank. This was due to the depreciation of the Sri Lankan Rupee in early 2020 - due to COVID-19 pandemic related economic outcomes, in comparison to the appreciation of the Sri Lankan Rupee in the comparative period in 2019.
The impairment charges for loans and other losses for Q1 2020 was LKR 1.3 Bn and was a 53% increase over the comparative period.
The Bank’s regulatory nonperforming loan [NPL] ratio was 4.78% and compares with 4.77% as 31 December 2019 and 5.2% of the industry for the period under review.
Total operating expenses for Q1 2020 was LKR 2.4 Bn, an increase of 8% from Q1 2019. The cost to income ratio of the Bank was 36.5%, and compares well with 39.9% for 2019.
The total tax charge for Q1 2020 was LKR 1.2 Bn, comprising LKR 556 Mn in VAT on financial services and LKR 631 Mn in Income Tax. The effective tax rate for Q1 2020 was41%, down from 53% in Q1 2019 due to the removal of Nation Building Tax [NBT] and Debt Repayment Levy [DRL], w.e.f 01 January 2020.
he Balance Sheet expansion was supported by a year-to-date [YTD] growth of 4% in the gross loan book to LKR 425 Bn. The YoY growth of the loan book was 18%, which translated to an increase of LKR 63.7 Bn. The focused and energetic business drive across all segments contributed towards the loan book expansion despite the effects of the pandemic.
Customer deposits grew by 2% YTD to LKR 414 Bn, whilst this was a YoY growth of 18% over Q1 2019 – a quantum growth of LKR 63 Bn. Within deposits, the CASA ratio remained at the 20% mark with the CASA base recording a marginal increase of 2% YTD driven by granular CASA.
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