HNB 3Q subdued on higher provisions; 9-month profit surges 51%

Hatton National Bank PLC (HNB) saw a marginal increase in its profits for the September quarter (3Q21), despite the solid loan growth for the period, as the bank recognised additional provisioning in the quarter under review, on account of the sovereign downgrade by rating agencies and uncertainties stemming from COVID-19.

According to the interim financial reports released to the Colombo Stock Exchange, HNB, with a group-wide asset base of over Rs.1.43 trillion, reported consolidated earnings of Rs.6.65 per share or Rs.3.5 billion, up just 2 percent from the corresponding period of the previous year.

However, for the nine-month period ended on September 30, 2021, the banking group saw its earnings soaring 51 percent year-on-year (YoY) to Rs.12.9 billion. The earnings per share for the period was Rs.24.67.

The bank reported a net interest income of Rs.14.1 billion, up 13 percent YoY, as the interest expenses fell faster than the interest income, due to the low interest rates. Interest margin reported as at September 30 was 3.59 percent, compared to 3.68 percent nine months ago.

The bank gave Rs.77.1 billion in new loans during the nine months to September 31, 2021, out of which Rs.59.5 billion was loaned in the third quarter.

The bank saw a steep increase in provisioning during the quarter under review, as it provided little over Rs.5 billion on possible loan losses, up from Rs.2.8 billion a year ago.

“Although the bank’s policy is to account for impairment of foreign currency-denominated government securities based on the ratings published by Fitch Ratings, on prudential basis the bank recognised an additional provision in 3Q 2021, on account of the sovereign downgrade by Moody’s in October 2021,” HNB said.

Meanwhile, the bank said the depreciation of the rupee relative to last year resulted in net exchange gains, largely stemming from balance sheet positions and FCBU earning revaluations, increasing by Rs.2.8 billion over the corresponding period, a substantial portion of which is reflected in other operating income.

Accordingly, the net other operating income of the bank during the three months under review surged by 221 percent YoY to Rs.2.1 billion and for the nine-month period it rose 82 percent YoY to Rs.6.6 billion.

Meanwhile, HNB said its consistent focus on credit quality enabled the bank to improve its gross NPA ratio to 3.92 percent by September 2021, compared to 4.31 percent as at end-December 2020.

The banking group raised Rs.28 billion in deposits during the three months under review and ended the nine months with deposits of Rs.1.06 trillion, up 10 percent from December 30, 2020.

Despite periodic disruptions to business activity in 2021, owing to lockdowns, HNB was able to increase its net fee and commission income by 9 percent YoY to Rs.2.3 billion in the third quarter and by 23 percent YoY to Rs.7.1 billion in the nine-month period.

As the country’s second largest private lender in terms of assets, HNB remains well capitalised. 

As at September 30, 2021, Browns Investments PLC, with a stake of 9.99 percent, was the single largest shareholder of HNB. The government, under various state-controlled enterprises and pensions funds held over 26 percent collectively, while business tycoon Harry Jayawardena held 17.83 percent of HNB, though his voting rights are limited to 10 percent in line with the Banking Act.