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Sunday December 10th, 2023

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.

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.

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ADB USD200mn loan for Sri Lanka economic stabilization efforts

ECONOMYNEXT – The Asian Development Bank (ADB) has approved a US 200 million dollar concessional loan to Sri Lanka to help stabilize the country’s finance sector.

The Financial Sector Stability and Reforms Program comprises two subprograms of IS 200 million dollars each, according to a statement by the ADB.

“The program’s overarching development objective is fully aligned with the country’s strategy of maintaining finance sector stability, while ensuring that banks are well-positioned for eventual recovery,” ADB Country Director for Sri Lanka Takafumi Kadono was quoted as saying in the statement.

“The expected development outcome is a stable financial system providing access to affordable finance for businesses in various sectors of the economy.”

The ADB statement continues:

“Subprogram 1 targets short-term stabilization and crisis management measures that were implemented in 2023, while subprogram 2 is planned to be implemented in 2024 and focuses on structural reforms and long-term actions to restore growth in the banking sector.

The program will help strengthen the stability and governance of the country’s banking sector; improve the banking sector’s asset quality; and deepen sustainable and inclusive finance, particularly for women-led micro, small, and medium-sized enterprises.

According to the International Monetary Fund’s (IMF) latest review, Sri Lanka’s economy is showing tentative signs of stabilization, although a full economic recovery is not yet assured.

The program is a follow-on assistance from ADB’s crisis response under the special policy-based loan that was approved for Sri Lanka in May 2023.

It is aligned with the fourth pillar of the IMF’s Extended Fund Facility provided to Sri Lanka to help the country regain financial stability.

It is also in line with the government’s reform agenda, including strengthening the operational independence of the Central Bank of Sri Lanka (CBSL) and its designation as the country’s macroprudential authority.

In designing this subprogram 1 loan, ADB has maintained close coordination and collaboration with the IMF to design targeted regulatory reforms for the banking sector—including the asset quality review—and with the World Bank on strengthening the deposit insurance scheme.

“The loan is accompanied by a $1 million grant from ADB’s Technical Assistance Special Fund to provide advisory, knowledge, and institutional capacity building for Sri Lanka’s Ministry of Finance and CBSL.”

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Sri Lank in blackout as power grid hit by cascading failure

ECONOMYNEXT – Sri Lanka suffered a blackout as Saturday evening as the state-run Ceylon Electricity Board grid was hit by a cascading power failure.

The cascading failure is believed to have been triggered by the failure of the Kothmale-Biyagama transmission line.

“The Ceylon Electricity Board wishes to inform our customers that due to the failure of Kotmale – Biyagama main transmission line, an island wide power failure has occurred,” CEB Spokesman Noel Priyantha said.

“Step by step restorations are underway and it may take few hours to completely restore the power supply.”

With hydro plants running flat out, a outage of the line tends to create a big imbalance in the demand and supply, leading to tripping of more lines and generators.

Lines can trip due to lightening strikes, or equipment failures.

Sri Lanka last suffered a cascading failure in December 2021, due to the failure of the same transmission line.

RelatedSri Lanka power blackout as grid hit by cascading failure

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Sri Lanka to host regional Food and Agriculture Organization conference

ECONOMYNEXT – Sri Lanka will host the 37th session of the Asia Pacific Regional Conference (APRC) of the United Nations Food and Agriculture Organization (FAO), from February 19-22, 2024 in Colombo.

The Conference will bring together agriculture ministers and officials from 46 countries across the region to discuss challenges in food and agriculture.

“The 37th APRC will provide a vital platform for regional collaboration, benefitting the agricultural landscape, fisheries sector and environment of Sri Lanka,” Minister Mahinda Amaraweera said at a press briefing on Friday (8) to announce the conference.

FAO has had an active presence in Sri Lanka for over 40 years. “FAO has supported the country in the implementation of Good Agricultural Practices (GAP), and the development of the fisheries sector for growth and climate resilience,” Vimlendra Sharan, FAO Representative for Sri Lanka and the Maldives said.

“The APRC conference will be an opportunity to highlight the innovative approaches introduced in partnership with the government.”

By hosting APRC, Sri Lanka hopes to demonstrate the country’s dedication to the growth of sustainable agriculture, and showcase its commitment to sustainable agricultural development.

The APRC agenda will include a forum on agritourism, especially requested by the Sri Lankan government.

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