NDB defends borrowing foreign funds; says strong pipeline of projects justifies move

NDB this week defended its move in having reached out for foreign borrowings, stating competitive sourcing of new funds was in view of a deep project pipeline and not to simply inject money into the Government.

Chief Executive Officer Rajendra Theagarajah adding clarity to NDB’s foreign borrowing exercises at this week’s investor forum said: “The funds were not mobilised just to pump money into Government bonds. We have made a decision to disburse it in the pipeline and I can confidently say that we have a deep project pipeline.”

Capitalising on the strong relationships maintained with international funding agencies, NDB in March and June this year raised $ 125 million and $ 75 million respectively via a syndication facilitated by the International Finance Corporation.

Theagarajah said $ 200 million was mobilised from medium to long term money, which the bank will be lending from 18 months to eight years.
This amount figured in the rising foreign borrowing by the financial sector.

With the enhanced presence of local banks in the international securities market, inflows to the Licensed Commercial Banks (LCBs) and Licensed Specialised Banks (LSBs) increased, resulting in a net increase in liabilities by $ 1.78 billion in 2013. Inflows in the first five months of 2014 were $ 94 million. Criticism from the Opposition and other sceptics was that banks with large State ownership were using their balance sheet strength to raise foreign funds on behalf of Government use. Given implied or explicit Government guarantee in some cases, the debate has been that higher foreign borrowing at commercial rates will increase the burden on the public.

Acknowledging that some of the funds were invested in Government bonds as ordinary course of the bank’s business, Theagarajah justified NDB’s borrowing by stating: “The ultimate purpose of mobilising those foreign borrowings on Government bonds was because we saw a clear window there rather than just going down the traditional deposits. It secures some serious medium to long term funding which could anchor the project and business portfolio.”
He also emphasised that the bank borrows since it has a natural business thirst in the segment.

“We have borrowed at rates which have made meaningful sense to us. We also tried to raise money through the international bond market, but we chose not to take that route since it did not make business sense to us. We were able to mobilise the same quantum of money at a much lower rate using likeminded confidence, with the willingness to achieve the same objective. It is the willingness to identify the right funding source,” clarified Theagarajah.

NDB’s asset base at Group level increased by 16% in the first half from end December 2013 and stood at Rs. 239 billion, thereby maintaining its growth momentum ahead of the industry growth levels.

The bank’s balance sheet growth was fuelled by a marked increase in loans and receivables and investments. Loans and receivables recorded a 26% increase (of Rs. 33 billion) over the last 12 months, primarily due to increase in infrastructure and working capital financing.

Loans and receivables also recorded a 12% increase over December 2013, which is well above the industry loan growth rate. Asset quality was sustained with a non-performing loans ratio of 2.69%, which is also well below the industry average.

NDB said the funds raised via this syndication facility would be infused into the SME sector of the country and other eligible sectors that contribute towards national development. The $ 200 million syndication saw several leading international banks and more than five international development financial institutions lending to the bank (some of them lending to Sri Lanka for the first time), which reflects the growing confidence the international financial fraternity has placed in the bank as well as Sri Lanka at large. The second phase of the syndication facility will also help further strengthen the Group’s balance sheet.

Theagarajah said part of the $ 200 million is being swapped into rupees but the majority of it was lent to local companies with dollar income.

At the investor forum in response to a question on whether the $ 200 million is being lent in dollars or being swapped into rupees, Theagarajah said part of it was swapped into rupees but the bank had also lent some to offshore business and most lent locally for companies with a dollar income.

In response to a query on whether the swaps done were at market rates, the NDB CEO said 50% of the overall swaps come at zero cost and the rest of it was the bank’s choice. “50% of the overall cover comes at zero cost; 25% has to be at market rate and the remaining 25% is open,” he said, adding that on the 25% market swap which NDB has obtained from the Central Bank, the rupee appreciated so the bank made money on that. He also said some funds were invested in Government bonds.

http://www.ft.lk/2014/08/13/ndb-defends-borrowing-foreign-funds-says-strong-pipeline-of-projects-justifies-move/