Theagarajah said NDB’s investment in Seylan Bank PLC was under the bank’s trading portfolio categorized under the available-for-sale (AFS) investments at this point of time but would continuously be evaluated how such investments could play a meaningful role in the bank’s strategic journey.
“The bank also had around 9.8 percent (stake) in Seylan Bank some time in the first quarter of last year and it is parked in the bank’s trading portfolio and it is still recorded under available-for-sale (category) of investments and it will continue to be recorded under AFS at this point in time.
We believe in this model (because) at this point in time Sri Lanka needs financial inclusion; we see the universal banking model making sense to us,” NDB Director and Chief Executive Officer Rajendra Theagarajah said.
The group posted a net profit of Rs.1.25 billion (EPS of Rs.7.62), up 46 percent year-on-year (YoY) during the December quarter, but the full-year net profit narrowed by 14 percent to Rs.3.54 billion (EPS of Rs.21.51) due to margin contraction and the hefty marked-to-market losses on its trading portfolio.
The net interest margin (NIM) of the bank fell to 2.63 percent from 3.31 percent a year ago. Having operated as a development bank, NDB received the commercial banking licence 10 years ago.
However, the bank has increased its retail and small and medium enterprise (SME) book by as much as 54 percent and the segment now accounts for 39 percent of the group’s assets, Theagarajah told an investor forum held last week.
“This segment is critical for the future of the bank,” he emphasized, adding that the retail and SME sector would play a leading role in the country’s next phase of economic growth.
The bank revamped its strategic direction end of last year as the bank thinks it could leverage its historical advantage in project and development financing to empower each individual and SME financially and linking up the latter with the value chains to provide them the market access.
The veteran banker and the former CEO of Hatton National Bank PLC, who took the reins at NDB in 2013, said he would pull three key levers to ensure the bank constantly delivers shareholder value expected of him while closely watching the NIM. One such key performance indicator (KPI) he constantly monitors is the bank’s ‘fees-to-net income’, which rose from little above 20 percent at the beginning of 2015 to 28 percent by the end of the year.
The bank makes conscious efforts to bring in fee-based incomes to cushion the pressure on margins.
“The bank recognizes the pressure on margins and the pressure on volumes,” he explained.
Further, the ‘cost-to-income’ ratio – a key efficiency ratio in the banking sector – was brought down to 49.5 percent and he expressed confidence in bringing it further down.
However, the bank is on an aggressive channel expansion drive as it opened five branches year-to-date after opening 10 in 2015.
The third and most importantly, the bank will drive its efforts to increase its low-cost deposit base – current and savings accounts (CASA) – in a bid to maintain its average cost of funds to a minimum and increase margins.
The bank had a CASA ratio of 25.6 percent at the end of 2015 but remains well below the industry average that hovers around 40 percent.
“Our peers are ahead of 40 (percent) and we recognize that. It’s a journey,” said Theagarajah adding that the bank records this CASA ratio in just 10 years since it started raising deposits.
Notably, the new branches opened during 2014, 2015 and 2016 maintain a CASA ratio between 40 and 70 percent. Matured branches too show a growth in CASA as a result of the bank’s efforts to capture the SMEs.
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