Capital TRUST Research - National Development Bank PLC

sriranga Tue Apr 16, 2013 8:11 pm

Case for Investment

Banking sector performances to improve.

Tight monetary policy reforms during FY2012 in the country restricted the performances of the banking sector. Imposition of 18%-23% credit ceiling on the lending portfolio coupled with increase in interest rates narrowed down the interest margin of the overall sector. With the removal of the credit ceiling from January 2013 we expect a substantial growth in the interest income.

Interest rates to be reduced in May-June 2013 (remarks made by the Treasury Secretary) that would drive the demand for credit. Thus, interest income would grow substantially.

Availability of overseas funding lines.

Budget 2013 permitted Development Banks in the country to raise USD 250mn over 10 year tenure long-term foreign finance, of which the exchange risk will be underwritten by the Government.

The Interest income earned from lending out of such borrowings will be exempted from the income tax. Thus, NDB and DFCC being the only beneficiaries will facilitate from low cost funding and such income being tax exempted.

Massive cash infusion from disposal of subsidiary, avail opportunities for strategic investments.

NDB Group booked a capital gain of Rs. 5.8bn from the divestment of its holding in Aviva NDB Holdings for a consideration of Rs. 7.6bn. Thus the Group is currently in a position to venture into strategic investments.

The bank is well capitalized to manage future credit growth and branch expansion without burdening equity holders

NDB Branch network to increase from current 69 to 120 by 2017 thus will enhance the bank’s customer base.

NDB Group maintains the lowest Gross NPL ratio of 1.31% in the industry reflecting superior asset quality and prudent management practices of its loan portfolio.

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