HNB June quarter gets a lift from sharply lower provisions

A sharp drop in the provisions made for possible loans and other losses helped lift the profit at Hatton National Bank PLC (HNB) for the quarter ended in June 2024, as the company’s net interest income came under pressure, due to the faster decline in the interest rates charged on loans.
The bank reported earnings of Rs.14.99 a share or Rs.8.57 billion for the April-June quarter, compared to Rs.4.14 a share or Rs.2.37 billion reported in the same period in 2023.
The bank provided Rs.814.9 million for possible loans and other losses for the quarter, massively lower from Rs.17.8 billion provided in the same period last year.
As the June earnings season is coming to an end, most banks reported less provisions, as widely expected, as they felt more confident about the economic recovery and received more evidence about how the restructuring of the International Sovereign Bonds was going to look like, as a provisional deal with the bond holders was made public by June-end. Further, the declining interest rates helped the borrowers battered by the repeated crises to look relatively stronger in their cash flows than before, enabling them to resume their loan repayments.
This helped the bank to cut its impaired or stage three loans ratio, although it has slightly risen to 4.09 percent, from 3.76 percent from December last year.
This is most likely to do with the still lacklustre growth in its loan book, which expanded by around Rs.1.1 billion in the first six months, although the rupee loans have grown by Rs.8.8 billion. However, the total deposits grew by Rs.14.8 billion during the same period, while the rupee deposits rose by Rs.55.6 billion.  The appreciation in the rupee appears to have dented the value of both loans and deposits denominated in foreign currency.

The bank last week announced to issue debentures to raise up to Rs.12.0 billion to signal that it is keen in growing its loans in the remainder of the year.
The bank meanwhile reported a net interest income of Rs.27.3 billion, down 13 percent from the same period last year. This was because the bank appeared to have had to reprice most of its loans when the prime rate fell sharply in the last 12 months.
However, the interest expense has fallen faster, as it cut the deposit rates faster, while the yield on the government securities also fell.
As a result, the bank’s net interest margin has narrowed to 4.70 percent, from 5.66 percent at the start of the year.
The bank also managed to generate Rs.4.8 billion from fee incomes, up 23 percent, while it made a trading gain of Rs.3.5 billion, in a sign of disposing part of its government securities as the yields fell, compared to a comparable period loss of Rs.1.35 billion.