An NDB Bank, Seylan merger could create Sri Lanka’s third largest private bank

COLOMBO (EconomyNext) – A possible merger of NDB Bank and Seylan Bank could create Sri Lanka’s third largest private bank with 521 billion in assets and 8.8 percent of loans and 7.5 percent of deposits in the country, an equities research report said.

Srimal Liyanage, analyst at Asia Securities told a business forum that it made sense for both NDB Bank and DFCC Bank to take-over Seylan.

NDB already had a 10 percent stake in Seylan Bank.

Liyanage said NDB’s deposit base had a large fixed term share, while Seylan had a high current and savings accounts share, reducing cost of funds.

Seylan was also planning to add 75 more of which 25 were planned for this year which will help NDB reach a larger base of depositors and small and medium clients. Its non-performing loan ratio was down to 8.6 percent in the first quarter of 2015 from 12.4 percent in 2013.

Though the stock was trading around 102 rupees, Asia Securities said it was worth more as a take-over target.

Liyanage however advised caution as mergers are not easy in Sri Lanka.

Sri Lanka’s central bank has tight single shareholder limits which analysts say is an automatic break against consolidation. Without a transparent and aggressive major shareholder to drive a take-over, any such process are also left to the management of a bank.

NDB started as a so-called development bank giving project loans from state-backed international credit lines, but is now turning more into commercial banking.

NDB Chief Executive Rajendra Theagarajah who has spoken in favour of consolidation in the past said he had not given up.

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NDB and DFCC recently dropped a merger plan, which was partly pushed by the banking regulator.

Theagarajah said in his experience in a market like Sri Lanka expecting mergers to happen from mere market forces was not practical and a regulatory nudge may be needed.

 

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