National Development Bank PLC (the Bank) and its group companies (together referred to as the Group) recorded an exceptional financial performance for the year 2014. The Group’s Profit Attributable to Shareholders (PAS) excluding any one-off gains crossed LKR 4 Billion, for the first time in its history, supported by a strong growth in the Balance Sheet assets to end at LKR 269 Billion as at 31 December 2014.
The Chief Executive Officer of NDB, RajendraTheagarajah, commenting on the year’s achievements maintained that, the NDB Groupunderwent structural re-modeling during the year enabling concerted focus and precise execution of the Group’s business strategy, which was the key driver of sound financial performance. The CEO also mentioned that the Group has consistently delivered improved shareholder value and created sustainable value to all other stakeholders whilst playing an integral role in the prospering national economy.
Profitability
The NDB Group recorded a Total Operating Income of LKR 12.97Billion for the twelve months ended 31 December 2014 which was a 12% increase from the comparative year’s Total Operating Income of LKR 11.55Billion. Total Operating Income was fortified by the performance of Net Interest Income (NII), Fee and Investments Income.
NII increased by 13% up to LKR 7.91Billion, from LKR 7 Billion of the comparative year. This is a notable achievement in comparison to the average industry NII growth rate. NII benefited from the strong growth in business volumes and prudent management of the Balance Sheet.
Impairment Charges for Loans and Other Losses were lower by 58% over the previous year, as a result of provisions made for one-off individual loan exposures during the year 2013. The Impairment Charges for Loans and Other Losses for the year ended 31 December 2014 was LKR 529 Million and compares with LKR 1.26Billionfor 2013. Accordingly, Net Operating Income increased by 21% up to LKR 12.44 Billion.
The Total Operating Expenses of the Group amounting to LKR 5.91Billion, was well managed, and recorded an increase of only 6%, when compared with the prior year. Both the Bank and the Group aggressively expanded their business operations during the year. Some of these activities were high cost initiatives such as the opening of NDB’s first ever digitized branch “NDB Connect” at the Kandy City Centre. Despite these significant business expansions, the Group demonstrated excellent operational efficiencies through effective procurement mechanisms. The Group is committed towards achieving additional sustainable savings by further streamlining its processes and procedures.
As a result, the Cost to Income Ratio for the twelve months ended 31 December 2014 was 45.52%, which is well below the industry average, and is also one of the lowest in the industry. Group Operating Profit After Tax on Financial Services recorded a 44% increase, while Profit After Tax increased by 57% over the previous year. Group PAS demonstrated a strong growth in core banking performance which accounted for 77% of the Group PAS for the year.
Balance sheet growth and asset quality
The total Balance Sheet size of the Group grew by 30% to reach LKR 269 Billion. The Group has demonstrated energized growth since crossing the LKR 200 Billion mark in 2013. Loans and Receivables to Customers increased by 28% and was LKR 175 Billion as at 31 December 2014. In the year 2014, the credit growth was confined to moderate levels in a very low interest rate regime.Against such a backdrop, the Group has performed commendably well in increasing its loan book across all product categories. Asset quality, denoted by the Non-Performing Loan Ratio was 2.5% as at 31 December 2014, and is well below the industry average.
In the liability frontier, Customer Deposits increased by 17%, and was LKR 152 Billion as at 31 December 2014, with a CASA ratio of 24.3%. It is noteworthy to mention that the Bank has preserved its CASA ratio and recorded onlya marginal deterioration from the CASA mix of 25% 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 Return on Assets (ROA) of the Group closed at 1.74% as compared to 1.39% of 2013, demonstrating efficient management of assets, to maximize profitability. Capitalizing on the strong relationships maintained with international funding agencies, NDB raised a total of USD 200 Million during the year via a syndication facilitated by the International Finance Corporation. The funds raised via this syndication facility were infused to the SME sector of the country and other eligible sectors that contribute towards national development.
Sound capital adequacy
NDB Group’s capital position was further strengthened during 2014. Tier I capital of the Group as at 31 December 2014 was LKR 26.95Billionwith a Capital Adequacy Ratio (CAR) of12.92%. Tier I & II capital was LKR 36.61Billionwith a CAR of 17.55%. NDB Group’s CAR has constantly remained at a strong level, which signifies the Group’s stability, capacity for expansion and ability to absorb risk. These constituents have served as key strengths which have enabled the Group to make significant strides in the banking and capital market businesses of Sri Lanka.
A dynamic financial conglomerate
The newest addition to the NDB Group is NDB Zephyr Partners Limited. Inaugurated in December 2014, NDB Zephyr is in the business of managing Private Equity Funds and currently manages the Emerald Sri Lanka Fund I, the largest Private Equity fund dedicated to Sri Lanka. The Fund will be investing on equity or equity related securities in growth oriented organizations such as SMEs in Sri Lanka.
Apart from providing much needed capital for the organizations, the investment team of the Fund Manager will provide guidance to portfolio companies in areas of strategy, finance and management development in order to enhance the value of the companies. The inauguration of the new company completed the missing link in the product portfolio of the NDB Group, which now features a dynamic set of full spectrum banking and capital market offerings.
Sustained value generated for shareholders
All shareholder return indicators soared during the year, indicating absolute value generated for shareholders. The Group Earnings Per Share (EPS) for the year ended 31 December 2014 was LKR 25.14with a 53% increase over the previous year. Return on Shareholder Funds (ROE) was 15.78%, a growth of 47%.
The share price of the Bank closed at LKR 250/- on 31 December 2014 with a market capitalization of LKR 41.3Billion. The Bank was the 16th in the Colombo Stock Exchange in terms of market capitalization ranking, and has moved up by 4 positions compared to its rank of 20 in December 2013.
The Total Shareholder Return (TSR) for the year ended 2014 was 62% and compares with a TSR of 31% as at 31 December 2013, which indicates the value created to investors over the years. The resultant Price Earning (PE) Ratio was 9.9 (times).
Awards and recognition
2014 was a year filled with many awards and accolades conferred on NDB by various national and international institutions. The latest award of the year was being selected as the sole global awardee for financial inclusion awarded by the prestigious Banker Magazine of UK (in November 2014). All these awards bear testimony to the significant impact NDB has created through its existence in multiple layers of the country’s economy.
The Chairman of NDB, Sunil WIjesinha, sharing his sentiments mentioned that NDB is committed to helping the Nation’s individuals to prosper, enable business growth and develop Sri Lanka’s capital markets via its conglomerate structure. He also noted that the Group is relentless in its efforts to penetrate all of the segments of the country, from small scale cottage industries to large sale corporates to usher truenational development.
