Financial Times

The NDB group pre-tax profits rose sharply to Rs 2.8 billion for the first half of the 2006 fiscal year ending June 30 against Rs 782 million in the 2005 period mainly because of exceptional capital gains secured on the sale of stock of shares.

The banking group said Capital Development and Investment Company (CDIC) made a capital gain in the first quarter 2006 after selling part of its holding in NDB Finance Lanka (Private) Ltd (holding company of Eagle Insurance Co Limited) shares to AVIVA International Holdings Ltd in February. The sale generated a profit of Rs 1.64 billion to the CDIC. Consequently, NDB Group through its holding of 75.6% in CDIC, made a profit of Rs 1.24 billion during the first quarter 2006.

NDB said in a statement that excluding this capital gain, profit before tax grew from Rs 782 million to Rs 1.1 billion. The profit after tax attributable to shareholders was Rs 1.7 million as against Rs 409 million. The effective overall tax rate for the bank on a merged basis inclusive of the VAT charge increased substantially to 58% in comparison with 39% in 2005 and 36% in 2004. The increased tax charge was primarily due to increase in the income tax from 30% to 35% and the VAT on financial services from 15% to 20%. VAT is applicable on profit before tax to which total staff costs are added. The resulting effective rate of VAT is 24%.

The statement said the core banking business continued to make steady progress during the period. Net interest income increased by 36% over the corresponding period last year to Rs 1.1 billion mainly due to the gross lending portfolio of the merged bank ncreasing from Rs 33 billion to Rs 38 billion. Non performing loans reduced from Rs 1.6 billion as at 31 December 2005 to Rs 1.1 billion as at 30 June 2006.