National Bank Limited - Credit Rating Agency of Bangladesh

%
CRAB Ratings
Bank
RATING REPORT (Surveillance)
National Bank Limited
Ratings
Long Term : A 1
Short Term : ST-2
Date of Rating: March 29, 2009
Validity Date : March, 2010
Previous Ratings
Long Term : A 1
Short Term : ST-2
Date of Rating : March 06, 2008
Analyst:
Ehsanul Kabir
Sr. Financial Analyst
ehsan.kabir@crab.com.bd
Exhibit: Financial Highlights
Particulars 2008 2007
ROAA (After Tax) 2.36% 2.40%
Return on Avg. RWA* 3.59% 3.64%
RWCAR 13.42% 13.11%
Cost to Income Ratio 41.03% 49.07%
Gross NPL Ratio 5.50% 4.53%
New NPL Ratio 3.90% 0.90%
Loans to Deposit
Ratio
* After Tax
4%
3%
2%
82.52% 76.05%
Exhibit: Return on Avg. RWA
Return on Avg. RWA
1.76%
3.64%
3.59%
1%
1.20%
0%
2005 2006 2007 2008
NBL
Year
1. Rationale
Credit Rating Agency of Bangladesh
(CRAB) Limited has affirmed A 1
(Pronounced A one) rating in the
long term and ST-2 rating in the
short term to National Bank Limited
based on audited financials as at 31 st
December 2008 and other relevant
information.
Commercial banks rated in the long
term A 1 belong to ‘Strong Capacity &
High Quality’ cohort. Banks rated ‘A 1 '
have strong capacity to meet their
financial commitments but are
somewhat more susceptible to the
adverse effects of changes in
circumstances and economic
conditions. A 1 is judged to be of high
quality and is subject to low credit
risk.
Commercial Banks rated in the short
term ‘ST-2’ category are considered
to have the strong capacity for
timely repayment of obligations.
Banks rated in this category are
characterised with commendable
position in terms of liquidity, internal
fund generation, and access to
alternative sources of funds.
National Bank Limited (NBL), one of
the first generation private sector
banks in Bangladesh, commenced its
commercial operations from March
1983 with paid-up capital of BDT
44.00 million. Bank’s paid-up capital
as of 31 December 2008 stood at
BDT 1872.72 million. NBL offers both
corporate and retail banking services
with a strong trade finance focus.
The bank typically provides short
term working capital loan and limited
long term credit exposure. NBL had
wide range of branch network across
the country with 106 branches in
2008.
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CRAB Ratings
Bank
Net interest income dominated the revenue stream with 41% of total income.
Other key sources of revenue were commission and exchange (29%) and interest
income / dividend from investment (15%). NBL’s cost to income ratio reduced by
8.04 percentage points and stood at 41.03%. NBL managed to restrict its
operating expense even increasing staff expenses (by 11.88%) mainly because of
8.38% decline in other operating expenses.
The bank’s net profit after tax has an increasing trend and stood at BDT
1,516.68 million in 2008. Although ROAA before tax increased in 2008, after tax
ROAA reduced marginally mainly because of higher growth in tax provision. NBL’s
after tax return on risk weighted assets (RWA) also witnessed slight reduction in
2008 and stood at 3.59% (2007: 3.64%).
The bank is mainly funded by customer deposit and internal capital generation.
About 30% of total deposits of the bank comprised current and savings deposits.
But NBL enjoyed lower cost of deposits (6.76%) compared to PCB average
(8.74% 1 ). The bank maintained satisfactory liquidity position in 2008. Loans and
advances to deposit ratio of the bank was 82.52% at the end of 2008. The bank
was the net lender to the call money market throughout 2008 except in May.
NBL experienced substantial growth (36.16%) in loans and advances portfolio
and reached at BDT 49,665.07 million by the end of 2008. The bank’s credit
portfolio was reasonably diversified in terms of intrinsic and concentration risk.
NBL’s loan portfolio in 2008 was dominated by local trade financing (32.02%)
followed by import financing (20.46%). The bank’s top 50 funded loans advances
in 2008 hold 35.83% (2007: 36.27%) of total loans and advances portfolio.
The Bank’s gross non-performing loan (NPL) ratio in 2008 increased to 5.50%
from 4.53% in 2007. Gross NPL ratio increased mainly because of higher growth
in fresh NPL generation despite 36.16% growth in loans and advances. It is to be
mentioned that apart from cash recovery, the bank had written off BDT 472.78
million and rescheduled BDT 151.30 million to reduce its closing NPL balance in
2008. Special Mention Accounts (SMA) to total loans & advances ratio of the Bank
reduced to 1.97% in 2008 (2007: 2.16%).
The Bank is reasonably capitalized with risk weighted capital adequacy ratio
13.42% by the end of 2008 (2007:13.11%) against regulatory requirement 10%.
The Bank increased its capital adequacy ratio to hold adequate capital in as per
regulatory requirement which is to be attained by June 2011. Risk weighted
assets to total assets ratio increased to 67.26% in 2008 (2007: 63.58%) which
indicated that the bank had invested in more risky assets in 2008.
NBL’s investment portfolio comprised government securities, quoted and
unquoted shares, debentures, fixed capital investment in Myanmar as well as
investment in NBL capital market service (CMS) fund. The bank invested BDT
1000 million with CMS. But NBL did not classify the margin loans based on
outstanding period. Moreover, the bank does not have any provision policy for
margin loan loss.
NBL has its strength in liquidity position and capital generation. On the other
hand, principal concern for the bank is higher growth in non performing loans.
NBL also lacks IT infrastructure for centralised MIS support.
1 As on September 2008
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