THE flotation of Sri Lanka's National Development Bank on the Colombo stock exchange beginning next week should provide an indication of confidence in the development of the country's financial sector. The Sri Lankan Government, which controls 100 per cent of NDB through its own holdings and stakes held by three other government-controlled banks, has decided to bring NDB to the market as part of its ''peoplisation'' or privatisation programme. ''This issue should be totally subscribed,'' said Mr Dennis Grubb of rival Merchant Bank of Sri Lanka. ''There aren't many shares to go around, but it's a solid outfit and the finance sector is likely to be the engine of growth in this economy.'' NDB, set up in 1979, is the country's leading development finance institution - in practice the main conduit for credit provided to Sri Lanka by the World Bank and the Asian Development Bank. However, the bank, valued at 450 million rupees, (about HK$90 million) has substantial non-concession business. Net profits were 250 million rupees on a 928 million rupee turnover in 1991. Profits are forecast to rise to 276 million rupees in 1992. Apart from being one of Sri Lanka's largest lenders (7.3 per cent of the national lending market) NDB is the largest single shareholder in two of the country's four listed commercial banks, Sampath Bank and Seylan Bank. Last year the government declared two of its state-owned banks, Bank of Ceylon and the People's Bank, insolvent after a loan scam. At the time, government officials predicted the two troubled institutions would require a cash injection of 16.4 billion rupees to stay afloat. NDB has managed to stay out of the trouble. Its loan recovery rate stands at just over 90 per cent compared with the sector's less than 85 per cent average. Bank subsidiaries are involved in fund management, stockbroking, venture and mezzanine capital, and insurance. Sponsoring broker Forbes and Walker in Colombo is pitching the bank as a direct play on the continued development of the Sri Lankan economy which has performed well despite the continuing civil war. Just over six million shares, or 34 per cent of NDB's current offering, are available to the public. The government still holds 275 million rupees worth of convertible stock it gained in restructuring NDB's capital. The government intends to offer these convertibles for sale before their conversion dates, beginning in seven years. After 20 per cent of the bank is placed with the ADB, Commonwealth Development Corp, Citicorp Investment Bank of Singapore and Asia Pacific Venture, bank employees will take five per cent and the government will retain 39 per cent.