NDB earnings recover as core banking offsets fraud hit

National Development Bank (NDB) delivered a stronger-than-expected operating performance in the first half of 2026, with its core banking franchise remaining intact, despite continuing to absorb the financial consequences of Sri Lanka’s largest recent banking fraud.

The lender reported a post-tax profit of Rs.4.83 billion for the six months ended June, more than double the restated Rs.1.93 billion recorded a year earlier, after incorporating the fraud-related adjustments into both reporting periods. 

The bank also returned to quarterly profitability, with a standalone profit after tax of Rs.3.01 billion during the April-June quarter, marking the first full reporting period since the fraud surfaced in April.

The latest accounts include a further Rs.2.55 billion fraud-related expense attributed to the March quarter, bringing the total value of the suspicious transactions identified by Deloitte’s forensic investigation to Rs.13.58 billion, higher than the bank’s earlier estimate of Rs.13.2 billion. The bank has restated the prior years’ financial statements to reflect the revised losses.

The restatement significantly altered NDB’s recent earnings history.

Its previously reported 2025 post-tax profit has been revised down to Rs.5.90 billion, from Rs.11.04 billion, while the 2024 earnings were reduced to Rs.8.18 billion, from Rs.9.03 billion, underscoring the scale of the accounting adjustments resulting from the fraud.

Excluding the fraud impact, the first-half profit would have reached Rs.6.21 billion, compared with Rs.4.22 billion a year earlier, indicating that the bank’s earnings capacity has improved, despite the exceptional charge.

The key driver was the core banking income rather than the trading gains.

The net interest income rose 2.8 percent to Rs.17.42 billion, as disciplined pricing and balance-sheet management helped maintain a net interest margin of 3.8 percent, while the fee and commission income climbed 22.4 percent, supported by a stronger credit card, trade finance and transaction banking activity. Total operating income increased 12.7 percent to Rs.25.13 billion.



Credit quality also continued to improve, an encouraging sign, given Sri Lanka’s still-fragile economic recovery.

The loan impairment charges declined nearly 23 percent year-on-year to Rs.3.46 billion, while the net stage three impaired loan ratio improved to 3.3 percent, from 3.8 percent at end-2025. The provision coverage also strengthened to 62.9 percent, suggesting the bank continues to clean up its loan portfolio alongside the fraud-related issues.

The balance-sheet growth, however, remained modest.

Net loans expanded by only Rs.1.7 billion during the first six months of the year to Rs.595.3 billion, although lending to the small and medium enterprises increased by Rs.8.8 billion. Deposits rose 0.8 percent to Rs.712.5 billion, while the CASA ratio fell to 23.6 percent, from 27.0 percent, indicating a slightly more expensive funding mix.

Capital and liquidity metrics remained comfortably above the regulatory minimums, despite the fraud adjustments.

The bank reported a Common Equity Tier 1 ratio of 9.7 percent and a total capital adequacy ratio of 15.3 percent, while the liquidity coverage ratios exceeded 163 percent, suggesting no immediate solvency concerns.

The forensic investigation remains ongoing; the law enforcement inquiries are yet to conclude and the final financial implications of the Rs.13.58 billion fraud may continue to shape investor sentiment.