Fraud-hit NDB boosts March earnings by spreading losses

​Fraud-hit National Development Bank PLC reported its financial performance for the three months ended in March 2026, adjusting for the share of the fraud recognised in the preceding quarter as well as the corresponding period last year.

​The bank in early April reported a fraud with an estimated size of Rs. 13.2 billion, rocking the banking sector and the broader corporate sector, which it later transpired had been taking place from 2024 onwards.

​Although the bank earlier stated it recognised the full financial cost of the fraud in the March quarter financial statements, in its interim results released last week, the bank said it has spread the cost across the financial periods during which it occurred for a better representation of the impact in the financial statements.

​As a result, the bank broke down the estimated financial impact of the fraud across three financial years: Rs. 914.51 million to the period prior to January 1, 2025; Rs. 9.62 billion to the financial year ended in December 2025; and the balance Rs. 2.67 billion into the first financial quarter of 2026.

​The bank recognised this estimated financial impact of the fraud in other expenses within its operating expenses, and the prior period profits were restated accordingly.

​Consequently, the 2024 after-tax profit was restated to Rs. 9.34 billion from an earlier reported Rs. 9.89 billion, while the 2025 after-tax profit was restated sharply down to Rs. 6.81 billion from Rs. 11.95 billion.

​Under these circumstances, NDB reported after-tax earnings of Rs. 1.60 billion for the January–March quarter in 2026, or Rs. 3.71 a share, compared to Rs. 152.98 million, or 35 cents a share, in the corresponding period in 2025.

​The March 2026 quarter profit was arrived at after charging Rs. 2.67 billion in gross, or Rs. 1.44 billion in net impact from the fraud, to the quarter.

​The current quarter profits appeared larger as the bank similarly charged a much larger impact from the fraud, which was estimated at Rs. 3.50 billion in the corresponding quarter in 2025, translating into Rs. 1.89 billion at the after-tax level.

​If not for the fraud impact, the bank would have reported an after-tax profit of Rs. 3.20 billion, compared to a corresponding period profit of Rs. 1.93 billion in 2025.

​At the core-banking level, the bank reported a net interest income of Rs. 9.13 billion, up 14 percent from the same period last year, as the bank continued to grow its loans despite narrowing margins.

​The bank grew its gross loan book by Rs. 30.9 billion in the three months to Rs. 674.76 billion.

​The bank also grew its deposits by Rs. 24.56 billion to Rs. 731.73 billion before the fraud came to light.

​The bank reported fee and commission income of Rs. 2.76 billion for the quarter, up 21 percent from the same period last year.

​NDB Chief Executive Kelum Edirisinghe reassured stakeholders of the bank’s sound core banking operations in an earnings release, despite the detection of the fraud, for which he said measures were taken to tighten controls and mitigate its recurrence.

​The bank’s Tier I capital adequacy level stood at 9.52 percent by the end of March 2026, above the minimum requirement of 8.5 percent, while the Tier II capital adequacy ratio stood at 15.41 percent, comfortably above the 12.5 percent minimum requirement.

​In view of the fraud and its estimated financial impact, the Central Bank suspended the cash dividend payable by April 6, but the scrip dividend proceeded as planned.

​The Employees’ Provident Fund holds a 9.46 percent stake in NDB, making it the second-largest shareholder, while the Employees’ Trust Fund Board holds a 3.38 percent stake.