Sri Lanka NDB Q2 net down 34.5 pct on declining margins

COLOMBO, Aug 28 (Reuters) - Sri Lanka's development lender
National Development Bank NDB.CM on Thursday said its
April-June net profit had fallen 34.5 percent due to declining
interest rate margins.

The income statement given to the bourse showed its
April-June quarter net profit has fallen to 363.6 million
rupees ($3.37 million) compared to 555.5 million in the same
quarter a year earlier.

"The margins are coming coming down and we have felt the
effect of it," NDB Finance Manager Swindrini Muthukumara told
Reuters.

However, she said a capital gain of around 250 million
rupees from the sale of an equity investment included in last
year's second quarter net profit also explained part of the
fall in this year's April-June profit.

Net interest income in the quarter fell 4.2 percent to
912.7 million compared to the same period last year.

"NDB's interest income growth has been much slower than the
growth in its income expenditure," Channa Amarathunga, director
at CT Capital, said.

Interest income grew by 23.3 percent to 2.67 billion
rupees, while expenditure on interest rose 46.1 percent to 1.76
billion rupees.

Sri Lankan banks were compelled to increase deposit rates
to attract more savings in the April-June quarter due to
inflation that ran at over 25 percent in the quarter.

Sri Lanka's lending rates were over 20 percent in the
April-June quarter as the benchmark treasury bill rates hovered
a little lower than that, driven by double-digit inflation in
the $27 billion economy.

High inflation discouraged people from saving money, while
high lending rates also increased the probability of
non-performing loans, analysts said.

However NDB's provisions for loans and bad debt have been
well-managed, Amarathunga said.

Shares in NDB, valued at around $110.1 million, are down
around 15 percent this year, outpacing the 4.7 percent drop so
far this year on the Colombo stock index .CSE.
(Reporting by Shihar Aneez; Editing by Bryson Hull)