Capital Question

April 22, 2008 (LBO) – A shareholder has asked Sri Lanka’s National Development Bank to return its excess capital to shareholders but its management says plans are on to use the money to better effect and the time is not right for a distribution. Mano Nanayakkara, an investment consultant who has a personal stake in NDB, says the bank’s capital adequacy of 26 percent while strengthening its balance sheet also indicates inefficient use of shareholder money and lower profitability.

Too Much?

“With its copious asset base and over-capitalization, NDB Bank may be loading up on too much into a good thing,” Nanayakkara said.

“It appears to be an obese lumbering giant in a sea of slim, swift, muscular competitors. To get its market performance up NDB Bank may need to go through a diet of capital restructuring.”

NDB chief executive Eran Wickramaratne says the bank is erring on the side of prudence even if there appears to be too much capital.

“I think on the face of it if you look at ratios in isolation, it is way beyond requirement,” says Wickramaratne.

“If you look beyond the ratios I think absolute numbers are not very big, generally there is a capital shortage in the industry.

“It is prudent for domestic and