Sri Lanka’s NDB Bank eyes private placement to boost capital

GROWTH STORY: Top NDB and CSE officials at a bell ringing ceremony. CSE CEO Rajeeva Bandaranaike said NDB had a market capitalization of Rs1.5bn when it was first listed. The shares are now worth Rs22bn.

ECONOMYNEXT – Sri Lanka’s NDB Bank Plc is planning a private placement of shares among foreign and domestic investors to raise capital as the lender is on track to become a systemically important bank, a top official said.

“We have a capital raising plan which we are currently working on most likely through placement arrangements,” Chief Executive Dimantha Seneviratne said.

NDB is adequately capitalized with Tier I capital of 9.02 percent of risk weighted assets at bank level against a requirement of 8.5 percent, and 10.21 percent at group level.

Its total capital adequacy with Tier II capital was 13.64 percent against a requirement of 12.5 percent. At group level total capital adequacy was 14.56 percent.

Banks that top 500 billion rupees in assets become a systemically important lender requiring an extra 1.5 percent in capital in the future.

“As at June we crossed 490 billion rupees (in assets) so we are on the threshold of making the 500 billion,” Seneviratne said.

A private placement is likely to take place in the next six months, with both foreign and domestic investors targeted.

Sri Lanka’s banks are trading at low valuations as bad loans spiked after monetary instability generated by a highly unstable soft-pegged exchange rate regime dubbed a ‘flexible exchange rate.’

The rupee fell from 153 to 182 to the US dollar in 2018, as the central bank printed money to target short term rates despite operating a forex reserve collecting peg, just as the credit system recovered from a previous currency collapse from 131 to 153 to the US dollar, analysts have said.

NDB’s non-performing loans climbed to 4.56 percent at the end of June from 2.9 percent in December 2018, lower than an industry average of 4.8 percent.

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Seneviratne says the pace of NPL accumulation appeared to have slowed.

“May be we have seen the worst, and things should improve,” he said.

The bank has tightened underwriting standards on new loans, and was also restructuring loans of customers who are operating in a difficult environment, he said.

“Wherever possible customers are in difficulties for genuine reasons we try to help them. We are not a bank to pull away from situations. So we try and support them with restructuring.

“If there are willful defaulters we will be very strong. We will enhance recovery.”

In the six month to June loans grew 5 percent to 361 billion rupees in the six months to June while some banks saw loans shrink.

Seneviratne says the bank is targeting 10 to 12 percent loan growth, though it may depend on economic condition for the rest of the year.

The central bank has also slapped price controls on deposit rates and has warned that it may control lending rate of individual banks.

Seneviratne says the bank has followed directions on deposit rates. The bank has little choice other than following directions he said.

NDB was listed in Colombo Stock Exchange with a market capitalization of 1.5 billion rupees in a privatization exercise, CSE Chief Executive Rajeeva Bandaranaike said. It now worth about 22 billion rupees.
(Colombo/Sept17/2019)