NDB seeks CB approval to merge with NDB Housing

BY HIRAN H. Senewiratne

THE National Development Bank (NDB) is seeking Central Bank approval to merge with its housing loan financing unit NDB Housing Company, its sources said.

The reason for this merger is to fulfill the Central Bank's request that all banks must have at least Rs. 2.5 billion reserve capital by the end of 2007, a fivefold increase from the current requirement to hold Rs. 500 Million, Director NDB Housing Company Sarath Wickramanayake said.

He said that at present 30 per cent NDB Housing Company is owned by the NDB and they requested Central Bank to allow them to buy the balanced 70 per cent to fulfill the capital requirement of the Central Bank.

If approved, the merger will give NDB housing access to cheap financing for its home loan business and also access to a wider market segment through its parent's commercial and development-banking network.

Wickramanayake said that once NDB acquired the balanced 70 per cent of the housing unit, it would be liquidated and merged with NDB to focus on the housing sector as an important sector.

According to the Stock Exchange sources, the board of Directors of NDB has decided to acquire the balance shares of NDB Housing Bank and merge its business with that of NDB.

Bank officials feel the merger will bring synergistic benefits in terms of access to NBD's growing branch network, centralised funding, processing capabilities and capital for its housing finance customers.

In August 2005 National Development Bank and its majority-owned subsidiary NDB Bank merged to form NDB Bank with combined assets totalling Rs. 60 billion, making it the fifth largest bank in terms of assets.

The merger had been on the drawing board for the last four years, with the bank's management hoping the move would lead to cost savings and will help NDB Bank meet the Central Bank's new capital requirement targets.

The new capital requirement is shaking up Sri Lanka's fragmented banking industry, encouraging mergers of small banks and forcing all to make more efficient use of their funds.