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| Sunday, 29 February 2004 |
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| News Business Features Editorial
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NDB Group posts steady growth The NDB Group has had a year of steady growth with group profits after tax of Rs. 1.221 mn for the year ended 31 December 2003, an increase of 17% over the previous year. This translates to a return on shareholders funds of 15% as compared with 14% for 2002. This growth has been driven partly by the bank's own profit growth of 8% and also by significant changes in the group structure. In April, the bank sold its controlling interest in Mercantile Leasing at a profit and soon after acquired a controlling interest in Eagle Insurance Company in July. Eagle's full profits have therefore been included in the second-half of the year. Several of the group's smaller companies also recorded improved performances in a year that for the most part saw an improvement in business sentiment and stronger economic growth. While the merger with NDB Bank has unfortunately been delayed again by the dissolution of parliament, the Group continues to develop into a cohesive and efficient financial services group. The fusion between the two banks strengthened during the year with much interaction at an operational and strategic level. However, the legal boundaries between the two banks form a natural limitation to such interaction, and full synergies could only be achieved after the merger. The merger with NDB Bank will be preceded by a broader reorganization within the group to enable it to operate in a more seamless manner, thereby improving efficiencies and customer service. Investor confidence, on which the bank's lending activities depend, improved gradually during the year and the level of approvals of direct credit facilities increased to Rs. 10.6 bn from Rs. 3.0 bn in the previous year. Project lending remains highly sensitive to political and economic events. The average size of the facilities approved also increased due to several large-scale projects in the power telecommunications, food and beverage sectors. Disbursements also improved during the year to Rs. 10.3 bn from Rs. 4.4 bn the previous year but lagged behind approvals due to the longer gestation period of large-scale projects. Although disbursements increased, the bank's direct lending loan portfolio declined by 1.2% due to prepayments of loans, partly because of clients opting for cheaper dollar or shorter tenor rupee funding.The bank has continued to be actively involved in the SME sector on a number of development orientated fronts and plays an important apex role in refinancing credit lines to other participating banks. Following a government initiative to help SMEs to be more competitive, the bank lowered the interest rates to around 9 to 11% to existing SME customers, which included direct loans granted by the bank as well as loans granted to other banks under its refinance loan schemes. Interest rate reductions were also extended to plantation sector reforms loans following a reduction in the corresponding credit line interest rate by the government. The portfolio quality of the bank improved significantly during the year. Gross non-performing loans (NPLs) at the year-end were down to Rs. 2.7 bn from Rs. 3.7 bn at the previous year-end. The bank continued to make prudential provisions in excess of the minimum Central Bank requirements and have also voluntarily implemented in 2003 the new "haircut" rule on security valuations which came into force on January 1 2004. The total specific provisions on NPLs covered 58% of total NPLs. Consequently, the bank's open loan exposure ratio, being net NPLs as a percentage of shareholders' funds, which measures the capacity of the balance sheet to absorb potential losses, was down to a very healthy 15.4% as compared with 37.4% at the previous year-end. Additionally, NDB continues its prudential policy of building general provisions against its performing portfolio. The healthy trend of declining NPLs and conservative provisioning, results in lower provisioning expectations for the future. The bank was able to contain the increase in its overhead expenses, including staffing costs, to 5% over the previous year. Group overheads are distorted by the inclusion in 2003 of the expenditure of Eagle Insurance Company and the exclusion of Mercantile Leasing on consolidation.The bank has recommended a dividend of Rs. 5.75 per share for 2003 (2002 Rs. 5.50) |
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| Editorial | Security Produced by Lake House |
