|
|
 |
 |
| Sunday, 11 April 2004 |
 |
|
 |
Business |  |
| News Business Features Editorial
|
NDB to increase focus on SME sector The NDB group had a year of steady growth with group profits increasing to Rs 1.123 mln for the year ended December 31 2003, It is an increase of 21% over the previous year. The return on shareholders funds increased from 14% in 2002 to 15% in 2003. According to the Director/General Manager N.S.Welikala the banks as well as its subsidiaries have contributed to this growth. It includes the acquisition of Eagle Insurance and the divestment of Mercantile Leasing Ltd. However if the strong performance of the group in 2003 is to be sustained, the principal structural issue facing NDB, the inability at present to supplement project lending with commercial banking products must be addressed. It had been proved by local and international studies that a privately owned bank whose activities are restricted to a single product, namely project loans is not sustainable over the long term. "Therefore in the event NDB is to retain its focus on project lending it has no option but to expand its product range so that it may compete with the commercial banks who are now the most aggressive project lenders. Therefore we will do so by acquiring the right to compete on an equal footing with commercial banks, added Welikala in his review. However converting policy goals to reality involves three implementation measures, ie the legislative changes, stakeholders approval and endorsement of strategic changes while the management carries the twin burden of extracting efficiencies from the existing limited business model for as long as possible, while simultaneously effecting its transformation. This is a complex and formidable challenge which is now being implemented in a planned and measured manner. While full merger with NDB bank is still not possible, broader reorganisation is being implemented within the existing legal framework to enable the group to operate in an increasingly seamless manner, thereby improving efficiencies and customer service. Investor confidence on which the bank's long term lending activities depend, increased gradually during the year, based on the assumption of the durability of the ceasefire agreement and improving economic fundamentals. However political uncertainties in late 2003 caused a setback as the demand for project lending is highly sensitive to political and economic developments. Approvals of direct credit facilities increased in 2003 to Rs 10.8 billion from Rs 3.2 billion in 2002. The average size of approved project finance facilities also increased due to several large scale projects in the power, telecommunication as well as the food and beverage sectors. There was a greater demand for floating interest and shorter tenor loans as customers anticipated further cuts in rates. The banks direct lending portfolio declined by 2.1% due to prepayments of loans, partly because of customers opting for cheaper dollar loans or shorter term rupee funding. However the overall portfolio declined by 7.6% due to the run down of the leasing portfolio, consequent to strategic issues arising from the acquisition and divestment of Mercantile Leasing, which will be addressed in 2004. The bank has continued to be actively involved in the SME sector on a number of development fronts and plays an important apex role in refinancing credit lines to other participating banks. Following a government initiative to help SME's to be more competitive, the bank lowered its interest rates to around 9-11 % to existing SME customers. Interest rate reductions were also extended to the plantation sector reform loans following a reduction in the corresponding credit line interest rate by the government. The banks focus on the SME sector would continue to increase. The non performing loan portfolio of the bank declined by Rs one billion from the previous year to Rs 2.7 billion. The bank continued to make prudential provisions in excess of the minimum Central Bank requirements and has voluntarily implemented the new "haircut" rule on security valuations, which came into force on January 1, 2004. The specific provisions on NPLs covered 56% of total NPL was down to a very healthy 16% compared with 37.4% at the previous year end. Additionally, NDB continues its prudential policy of building general provisions against its performing portfolio and Rs 649 Mn was therefore charged against profits for the year by way of doubtful debt provision. "The healthy trend of declining NPLs and conservative provisioning results in lower provisioning expectations for the future," states Welikala. |
|
News | Business | Features
| Editorial | Security Produced by Lake House |
