HNB March profits surge on strong loans, margins and efficiency gains

Strong growth in new loans, higher margins and operational efficiencies helped Hatton National Bank PLC (HNB) to offset higher loan-loss provisions and trading losses in March, as the banking group reported robust growth in bottom line for the quarter. 

According to the interim financial accounts filed with the Colombo Stock Exchange, HNB, Sri Lanka’s second largest private lender by assets, reported earnings of Rs.9.38 a share or Rs.4.6 billion in total profits, up 21 percent from the same quarter last year.       

             
The net interest income rose by 13 percent year-on-year (YoY) to Rs.12.2 billion, as the bank upped its net interest margin to 4.40 percent from 4.25 percent in December 2017. 

The HNB share ended 20 cents or 0.08 percent higher at Rs.242.50, yesterday. 

The bank, on a stand-alone basis, gave Rs.34.8 billion in new loans, which translated into a growth of 5.4 percent during the three months. 

The bank has a total loans and receivables book of Rs.684.3 billion. 

Meanwhile, the bank provided Rs.1.26 billion for possible bad loans for the three months, significantly up from Rs.440 million during the same period in 2017. 

A large section of those new provisions were general provisions, which increased in line with the growth in new loans. 

The asset quality weakened slightly to 2.72 percent from 2.28 percent but stays well below the industry average of 3.0 percent. 

Sri Lanka’s banking sector asset quality fell into a three-year low during the first quarter as the stressed assets rose due to weak macroeconomic conditions while the new loans slowed. 

HNB currently operates with a healthy capital base as both the Tier I and Tier II capital ratios under the BASEL III accord stay at 12.78 percent and 15.77 percent, respectively, whereas the regulatory minimums are 8.875 percent and 12.875 percent. 

The higher growth in new loans put pressure on the capital adequacy forcing the banks to rev up their capital raising plans as these regulatory thresholds further go up by January 1, 2019, when BASEL III comes into full effect. 

Meanwhile, HNB increased its new deposits by Rs.19.1 billion or 2.7 percent during the quarter under review.

In a notable development, the bank increased its low-cost funding base or current and savings account (CASA) ratio to 38 percent from 35.5 percent in December 2017. 

The bank, on a stand-alone basis, has a total deposit book of Rs.721 billion. 

The bank also increased its net fee and commission income by 12 percent YoY to Rs.2.4 billion. 
“Core non-funded income sources being credit cards, trade finance and bank guarantees performed strongly while fees from digital channels exhibited promising growth,” HNB said in an earnings release. 

A net trading loss of Rs.277.4 million was reported during the quarter, against a trading gain of Rs.537.4 million during the first quarter 2017. 

“This is largely on account of exchange rate movements, which adversely impacted the revaluation of swaps obtained to hedge foreign currency positions,” the earnings release said.      

However, the commensurate impact on position revaluation boosted the other operating income, which was reported at Rs.885 million, relative to a loss of Rs.295 million in the corresponding period of 2017. 

The bank improved its cost-to-income ratio – a key efficiency ratio – to 36.3 percent from 41.9 percent a year ago. 

As of March 31, 2018, the government controlled a 25.12 percent stake in HNB through the Employees’ Provident Fund, Sri Lanka Insurance Corporation Limited and National Savings Bank. 

Harry Jayawardena-controlled Milford Exports Ceylon Limited, Stassen Exports Limited and Distilleries Company of Sri Lanka collectively held a 17.83 percent stake but the voting rights are limited to 10 percent.