While increase in core-banking, non-fund based incomes and the better management of operating costs contributed to the better performance, the biggest boost for the profits came from the significantly lower impairments charged against the individual borrowers.
The total impairments for the quarter was Rs.223 million, out of which individual impairment reversal amounted to Rs.177.7 million as against an impairment charge of Rs.762 million in the same period last year. The Net Interest Income (NII) rose 5.4 percent yearon-year (yoy) to Rs.1.95 billion on the back of many others find it challenging to grow NIIs.However, NDB Bank on a standalone basis saw its Net Interest Margin (NIM) pressing to 3.31 percent from 3.74 percent a year ago due to prevailing lower interest rates.
Sri Lanka’s key interest rates have been easing since December 2012 and are expected to remain unchanged for the remainder of 2015 on the expectation of headline inflation remaining benign.
Meanwhile, the NDB group increased its non-fund based incomes by 7 percent yoy to Rs.726.9 million.The banking sector analysts are of the view that the higher margins had now come to an end and the emphasis should now shift towards diversifying returns via non-fund based incomes.
Further, they say the banks should now trim their fat in their structures as any other lean business to increase cost efficiencies to become a winner in this new banking order.
Except for the personnel cost which rose by 27 percent yoy, other expenses declined by 6.9 percent yoy to Rs. 747.9 million.
“Despite these significant business expansions, the group demonstrated excellent operational efficiencies through effective procurement mechanisms,” the bank said in a statement.
The cost to income ratio, the measurement of the cost efficiency of a financial institution, declined to 45.52 percent, much better than the industry average.
Meanwhile, for the year ended December 31, 2014 the group posted a net profit of Rs.4.1 billion (Rs.25.14 per share), up 56 percent from a year ago.
This was achieved on a NII of Rs.7.9 billion, up 13 percent and non-fund income of Rs.2.6 billion which is also up a moderate 6 percent.
What is notable was that the bank expanded its loan book by 28 percent in 2014 to Rs. 175.2 billion when the industry private credit was lagging far behind at 7.5 percent.
The gross non-performing loan ratio, the measurement of the bank’s asset quality slightly weakened to 2.51 percent from 2.48 percent, but remains among one of the lowest in the industry.
Even under the low interest rates, the bank managed to increase its deposit base by 17 percent to Rs.151.8 billion. The low cost funds measured by the Current Account Savings Account (CASA) ratio edged down to 24.3 percent from 25 percent a year ago.
“It is noteworthy to mention that the bank has preserved its CASA ratio and recorded onlya marginal deterioration from the CASA mix of 25 percent in 2013, amidst a low appetite of the customers to invest their savings/funds in bank deposits, given the low interest rate environment that prevailed during the year,” the bank said.
However, NDB Bank’s CASA remains significantly below some of the peers as it predominantly depend on long term funds for project financing activities.
The bank raised a total of US $ 200 million during 2014 from the World Bank’s private sector financier, the International Finance Corporation (IFC).
In December, the bank ventured into private equity with the establishment of NDB Zephyr Partners Limited.
During the year, the return on assets of the bank on a standalone basis declined to 1.47 percent from 4.24 and the return on equity dropped to 3.31 percent from 3.74 percent. The bank has an asset base exceeding Rs.262 billion. As of December 31, 2014 the Sri Lankan government held 33.25 percent stake in the NDB Bank group through various state-owned institutes and pension funds.