NDB’s Group Chief Executive Officer Dimantha Seneviratne, speaks to media in the backdrop of recent success recorded by National Development Bank PLC.
NDB’s inception dates back to 1979. How has the Bank evolved to become aprestigious institution in the Sri Lankan banking industry as it is today?
NDB commenced its operations as a premier development financing institution [DFI] in 1979, nearly four decades ago. This was a time that Sri Lanka was going through a rapid transformation and a new scale of economic development. NDB was instrumental in financially empowering a large number of mega development projects in the county and also funded a host of SMEs in varied sectors, a key segment in the country’s economic development.Over the years it has evolved and broadened its operations to serve a larger customer base of the country. The key turnaround point in the Bank’s recent history is becoming a fully-fledged commercial bank in 2005. Through the years, NDB has also expanded its services to the capital market activities, through the robust capital market subsidiaries, including private equity management.
We are firmly based on a set of very strong corporate values, which are upheld by our employees such as integrity, excellence in our service, sincerity, accountability and creativity and which are also closely associated with our brand. As an institution which is a custodian of public funds, we conduct ourselves with the highest level of ethical standards, professionalism and are fully compliant with the regulations that govern us. I think a combination of all this and the strong drive for business excellence has put us up in this position.
NDB made several headlines right through 2018, for various awards and accolades that it won. In which areas have the Bank excelled to receive such a large number of awards?
We are highly motivated by the external endorsements that were bestowed upon us during the year. Being recognized as the Best Bank in Sri Lanka by the prestigious, USA based Global Finance publication tops them all. In addition to this, a number of regional as well as UK based awards have recognized NDB in a host of core business performance areas, such as retail banking, SME banking, project financing, financial inclusion endeavors, competence in syndicated loans, corporate debt deals and corporate customer solutions. Two of our retail banking products, Dream Maker personal loans and NDB Good Life credit card were also recognized as the best in their respective categories.
Our marketing initiatives and investor relations initiatives have also been recognized with awards presented by awarding bodies dedicated to these disciplines.
NDB’s capital market cluster companies were also the proud recipient of many awards including NDB Investment Bank being recognized as Sri Lanka’s Best Investment Bank by the Euromoney Magazine for the seventh consecutive year.
In consideration of the fact that NDB is the only financial servicesgroup of its kind in Sri Lanka, and also the excellence NDB has shown in both banking operations as well as capital market solutions, we were also recognized as the Best Financial Group in Sri Lanka, by the Global Banking & Finance Review of UK.
These awards are an affirmation of our commitment for excellence in brining better solutions to our customers and empowering them and also our nation in development.
What is NDB’s current market position?
Today, NDB is a fully fledged commercial bankin Sri Lanka. It caters to the retail mass market as well as the retail high-net worth clients, with a robust product portfolio in both assets and liabilities.
Although NDB ceased to become a “development bank” as per definition, our mission in supporting and empowering the country’s development continues. We cater to corporate, middle market, SME as well as micro scale businesses. We are also a most sought after lender in the project financing sphere, given our expertise in this area.
Apart from that, our positioning in the industry goes beyond the scope of a commercial banking entity. NDB Group is the only financial services group in the country, who offers services in a host of capital market activities such as full service investment banking, securities trading and advisory, wealth management and private equity placements, in addition to commercial banking services. So all in all, we are unique “one-stop” financial solutions provider, may it be in banking or capital market services, bringing ultimate convenience to our customers.
How has NDB Bank’s performance been in the recent past? How well have you performed in 2018 so far?
NDB has made great strides in its performance over the years. We have made considerable improvement in our profitability and balance sheet indicators, especially considering the fact that we have been functioning as a commercial banking entity for just over 10 years, compared to our much mature peer banks.
At a Group level, we have a balance sheet in excess of LKR 400 bn. Over the past five years, the Bank’s total assets have grown at a CAGR of 18%, whilst loans to customers also have grown at a similar rate. Customer deposits have grown in excess of 20% over the five years. We are glad to have sustained such consistent growth over the past. We’ve also increased our profitability levels over the years. As per our financial results for the FY 2017, we are a LKR 4 bn post tax profit banking institution.
Furthermore, we have been maintaining a host of KPIs at very healthy levels. Our non-performing loan ratio, which was 2.46% as per the latest published financial information for the first quarter ended 31 March 2018, has been consistently lower than the industry average. Our cost to income ratio has also been well managed.
Stemming from the fact that our organization was a DFI,there have been few structural mismatches in our model compared to our mature peers. Lower Current Account and Savings Account [CASA] base and high loans to deposits ratio are a few to name. However, we are pleased to note that NDB has made vast improvements in these ratios, in a short span of 12 plus years and come to level playing fields with its peers, and is improving day by day.
During the 2017 financial year, we recorded exceptional growth rates, many of which were well ahead of the industry. Out total assets grew by 15% to reach LKR 383 billion. Our loan book grew by an impressive 20%, ahead of the industry growth rate of 16%. This growth translated to a quantum of LKR 46 bnin loans. Customer deposits grew exponentially, at 34% YoY versus the industry growth rate of 17.5%. This growth translated to a quantum growth of LKR 70 bn.This was the highest YoY deposits growth rate we achieved over the past five years. Within overall deposits the CASA base also grew by an impressive 25%, higher than the industry CASA growth.
In terms of profitability, our profit after tax [PAT] at the bank level soared by 37% to LKR 4.4 bn. Cost to income ratio was 45.5%, an improvement from prior year’s 49%.
In terms of our performance for 2018 so far, we have continued the upbeat in our performance. As was reflected in our financial results for Q1 2018, we had an exceptional opening quarter for 2018. PAT at the Bank level grew by an impressive 35% to LKR 1.6 bn, compared to Q1 of 2017. Group PAS followed a similar trend, and grew by an encouraging 56% to LKR 1.2 bn.
The indications given by the Q1 results are promising, for yet another successful year in 2018.
What specific market competencies does the NDB Group enjoy in the Sri Lanka’s banking and capital markets sphere?
Our retail banking offerings in both assets and liabilities are truly lifestyle solutions. Our full spectrum of products and services cater to the financial needs of any individual, in whichever stage of life they may be in. During 2017, we further strengthened our deposits offering with three new products, namely NDB Savings Planner, NDB Araliya and NDB Achara. Savings Planner is dedicated to smart savers with preference for savings plans, whilst the other two are dedicated to aspiring women and senior citizens in the country. We also relaunched our children’s savings account, with a host of new benefits. NDB Dream Maker is the most sought after personal loan product in the industry. We also have speedy and smart solutions in leasing, housing, credit cards, etc.
We also enjoy unmatched competence in SME financing, which has been a part of our mandate at the inception of the Bank way back in 1979. Since then to date, we have perfected our assistance to this sector, not only via financial assistance, but also via a host of non-financial assistance.
NDB’s corporate banking solutions are renowned in the industry for the timely and customer-friendly solutions. Corporate banking is a prime contributor in the Bank’s loan growth with a full spectrum of service including cash management.
Project financing is yet another very strong competence of NDB. We are proud to have been with some of the major development projects of the country right through our operations spanning four decades. Even today, we are a stakeholder in the major infrastructural and other development projects that are unfolding in Colombo as well as in other parts of the country.
We also enjoy specific competence on the renewable energy sector in the country. We are proud to be one of the banks to fund the first ever wind power projects and waste-to-energy projects in Sri Lanka. Our Project & Infrastructure Unit has also expanded its services to cross-border jurisdictions and pioneered funding renewable energy projects in the African continent, through offshore companies with Sri Lankan origin.
The newest addition to our product portfolio is NDB Business Banking. This is a dedicated proposition to empower the businesses in the SME and middle market segments with the mission to assist them in taking their businesses to the next level of growth.
The capital market subsidiaries of NDB have also firmly established themselves in the industry. Our investment banking arm, NDBIB is the market leader for debt and equity capital raising and mergers and acquisitions. Our wealth management arm, NDB Wealth Management is Sri Lanka’s largest private fund manager with close LKR 100 bn funds under management with 8,000 plus customers.
Please tell us about your presence in the country.
Our reach to customers has also increased significantly. NDB’snetwork which stood at 22 branches when we converted to a commercial banking entity in 2005 has now reached 107, spread across the country with fully-fledged branches. A notable point about our network is that approximately 50% of the branches have been added on to the network over the past five years, hence with considerable potential in reaching out to more clients. Our reach is also strengthened by an on and off site network of 129 ATMs and cash recycle machines.
Our virtual presence is also quite strong, presented via a host of digitally enabled platforms. On-line banking, mobile banking enabled on both smart phones and feature phones, branchless banking and cash recycle machines are few to name. We have strengthened our dedicated Digital Financial Services [DFS] Unit by hiring skilled and experienced staff, to enhance and improve our digital solutions, and stay abreast with the latest technology available in our industry.
We have our presence in the South Asian region as well, in Bangladesh, with an investment banking arm under the name, NDB Capital Limited Bangladesh. Thisentity has greater growth prospects in the backdrop of high economic growth recorded in Bangladesh.
What is the Bank’s current strategy that has propelled the Bank forward?
We are presently on a very ambitious organic growth strategy. Dubbed as Transformation 2020, this strategy aims to transform NDB to a systemically important bank in the country by 2020, with a total assets base exceeding LKR 500 billion, as defined by the Basel III guidelines. The strategy was developed with the professional input of the IFC, a part of the World Bank Group. It involves improvements in a large range of business processes as well as support services within the Bank, with a bid to increase business volumes, profitability and customer services.
This transformational strategic process can be described as the most structured and coordinated strategy program in the Bank. The strategy has led to a new organizational culture and transformation in the mindset of Team NDB, aligning them towards the strategy, and ensuring their understanding and acceptance of the ambitious growth journey the bank has embarked on.
Does the bank have any inorganic growth plans? or Could you outline your company’s/group’s future plans especially in regard to expansion?
Whilst we move forward on organic growth, we most certainly are open for inorganic growth opportunities as well. Consolidation can bring in a host of benefits to the industry also. Given the implications of recent developments affecting the banking sector such as Basel III guidelines, implementation of IFRS 9 and new tax laws in operation, banks and financial institutions are facing large capital requirements. Consolidation could prove as an effective solution in enabling certain entities to be compliant in these capital requirements.
We would look at inorganic growth options, provided such consolidation enhances the value to the shareholders and other stakeholders and complements our growth model.
What is NDB’s approach to capital management and infusion of new capital to support the growth of the business?
As a financial services institution, capital is of utmost important to us. As we have now entered a rapid growth mode, we are required to maintain a healthy capital level to support this growth. Historically, and to date, NDB has been soundly capitalized, with our capital ratios well above the regulator mandated levels.
In times of need, we have resorted to raising capital via feasible modes, such as debenture issuances, as seen in 2013 and 2015. Recently, we also made intimations of raising equity capital to support the Bank’s growth. Accordingly, we have now announced our plans to raise equity capital via a Rights Issue of LKR 6.2 bn.
Furthermore, we fund the balance sheet and loan book growth via timely institutional funding. In June 2018, the Bank obtained a loan of up to USD 75 million from Commerzbank Aktikengsellschaft Germany. The funds will be mobilized in NDB’s general banking business, without restrictions on any specific sector.
The Bank also entered in to an agreement with the IFC, for a loan up to USD 50 million, equivalent to a fixed rupee facility of LKR 8 bn, for the purpose of lending to borrowers, especially in the climate smart agriculture sector.
What are the challenges that your bank face, as a relatively young commercial bank?
As I mentioned earlier, our commercial banking operations have been in operation for just over thirteen years. Attracting low cost funds, especially CASA remains one of the key challenges that we face. We have made vast improvements in this regard, having improved the CASA base from almost zero to mid-20% in just 10 years. Our strategy places key emphasis in improving the CASA base. What is noteworthy is that, in the challenge in improving CASA, also comes the upside of further enhancing our interest margins and profitability.
The scale of balance sheet, compared to much mature peers is also one area we are working on. The current strategy pursued by the Bank will propel us to be amongst the systemically important banks and place us on a better footing in terms of capturing scale advantages from 2020 onwards.
How strong is your core management team, and the Group management team, in steering your organization through this internal growth phase, amidst external challenges?
We have one of the best corporate management teams, with members who are industry savvy, and carry to their credit, the right fusion of professional qualifications and years of experience. They are competent in motivating our staff and guiding them towards delivering results. During the recent past, the organization saw some structural changes, to recalibrate its business model to cater to developing industry trends. We had the incoming of some fresh seasoned hands in to the Bank, to bring in added versatility to the corporate management team.
For example we saw new appointees in the positions of the Group Chief Financial Officer, Vice President Human Resources and Vice President IT. We also strengthened our corporate management team with a new Vice President position for Business Banking, which is now a key business segment within the Bank’s overall business focus. This position was occupied by one of our own in grown talents, who is an expert in SME financing. A head of digital financial services was also appointed at the Assistant Vice President level, considering the significance of digital aspects in today’s banking and its contribution in our surge forward.
The function of Marketing was broadened to Marketing & Customer Experience, now under the leadership of a Vice President, in recognition of the importance of our customer–centric growth model.
We will also be on-boarding a Chief Operating Officer very soon, another seasoned hand in the industry, to overlook all the operational aspects which is the backbone of the Bank, such that we could focus on business development.
I think with these changes in the corporate management team, the transition of which has happened in a gratifyingly short period, we are ready to take NDB to the next level.
Apart from these changes to the top management team, we carried out a host of organizational change management initiatives encompassing the total NDB Team. These initiatives ensured that all of the NDB members are aware and aligned towards the Bank’s overall strategic objectives as set out in the Transformation 2020 strategy, and are further united under the Bank’s new culture identity “One NDB” in achieving them.
Similar change management and synergy development initiatives are presently underway at the NDB Group companies, in the capital markets cluster; such that we can harness all financial services under one umbrella to provide a seamless and full spectrum of services to our customers.
What are the growth prospects for NDB for beyond 2020?How will NDB achieve them?
We have already strategized our growth trajectory to be pursued for the next five years, once we complete our mission set out by the current strategy of Transformation 2020. We will focus on taking NDB to greater heights, from the LKR 500 bn plus, systemically important institution that it will be by 2020. We will well embed the wider technological and customer demographic changes in to our strategy as they unfold, to stay relevant and competitive in the fast evolving market space.
Delivering on digitally enable banking solutions will be at the core of our strategy and growth mode. Digital financial services [DFS] are undergoing rapid development, and some of our regional peers are now using Artificial Intelligence to serve their customers. DFS offers limitless possibilities. The upside for a mid-sized bank like NDB is that our scale of operations better allows us to embrace and embed these DFS initiatives towards an optimum business model, as opposed to larger institutions, where such conversions would be more challenging and time-consuming.
The unwavering strength of our shareholders has been a key constituent of our success over the years. We look forward to their continued support as NDB forges ahead in the industry and enters new leagues. NDB is blessed with a team of best in class, skilled, trained and qualified employees, who have made every success of the Bank possible. Our loyal customer base is our biggest strength and our commitment is for their success and prosperity.
Our gratitude goes out to all stakeholders who support us in our growth journey.