HNB Finance could pursue M&As as company actively seeks inorganic growth

• Plan could augur well with regulators, who actively seek to reduce number of finance firms in operation 

HNB Finance PLC (HNBF) is eyeing possible mergers and acquisitions (M&As) in the current financial year, in order to pursue inorganic growth opportunities for the company to propel its growth momentum while growing in size. 

Any potential M&A deal by the company would also receive the blessings of the Central Bank, as the regulator has consistently shown its commitment for consolidation in the industry for nearly a decade now, albeit it received fresh life since last year, after the new administration came to power in 2019. 

“While driving organic growth, I would like to mention that HNBF is also actively examining opportunities for inorganic growth through strategic partnerships, which is in line with the Central Bank directives,” said HNBF Chairman Jonathan Alles in his annual review to the shareholders. 

The Central Bank is expected to soon come up with a five-year consolidation plan on the licensed finance company sector, with the aim of bringing the number of companies to 25, from the 
current 40. 

The objective is to create the strength and scale of the companies in the sector while enhancing the efficacy of their supervision. 

Weighing in on the intentions for inorganic growth aspirations, HNBF Chief Executive Officer B.M.D. Chaminda Prabath underscored that this growth strategy is under consideration.  

“The inorganic growth opportunities presented through the CBSL reforms are under consideration as a favourable option and will be further advanced in the new financial year,” he said. 

The non-bank lender said it has the capital heft in excess of the regulatory requirements to pursue its growth ambitions. 

The company itself came into being to what it is today through multiple acquisition deals since 2011, when the Prima Lands group acquired the former Ceylinco Grameen Company Limited, which was re-registered as Prime Grameen Microfinance Limited. 

Thereafter in 2014, Hatton National Bank PLC acquired a 51 percent stake in the company from Prime Lands and renamed it as HNB Finance Limited in 2018, before the company was listed on the Colombo Stock Exchange in 2020. 

The company is known as a pioneer of the ‘Grameen’ microfinancing model in Sri Lanka and is sill among the leading micro lenders in the country. 

The company has gone through some challenging times, largely due to the pandemic, as micro loan collections became extremely challenging and such loans didn’t keep pace with the growth in deposits.  As a result, the company’s gross non-performing loans ratio shot up to 17.68 percent in the financial year ended in March 2021, from 12.25 percent last year and ended up with a net loss of Rs.124 million for the year, compared to a profit of Rs.395 million in the previous financial year.

HNBF is actively seeking to reduce its reliance on microfinance lending, which now accounts for half of its loan book, to non-micro lending consisting of leasing, pawning and specialised business loans as part of its ongoing portfolio rebalancing and portfolio diversification strategy. 

Hatton National Bank PLC has a 51 percent stake in HNB Finance, while Prime Lands (Pvt.) Limited has a 38.78 percent stake. The Development World Market ́s (DWM) Inclusive Finance Equity Fund also has a 7.93 percent stake in the company.