HNB 3Q profit flat amid higher credit costs, slowdown in new loans

Hatton National Bank PLC’s (HNB) September quarter profit came under pressure amid significant credit costs charged against the profits, while the core banking operations moderated amid the slowdown in demand for new loans. 

According to the interim financial accounts, the second largest private lender by assets, reported earnings of Rs.8.27 a share or Rs.4.07 billion for the July-September period (3Q17), against the Rs.9.41 a share or Rs.4.01 billion profit. 

While the profits were largely unchanged, the per share earnings came down by 12 percent during the quarter under review as the bank in July raised Rs.14.5 billion in a rights issue to drum up its capital base in line with the BASEL III rules. 

The lender provided a massive Rs.932.3 million against the profit for possible bad loans during the quarter, up from just Rs.48.4 million in the same period, last year. 

The asset quality came under pressure as the gross non-performing loan ratio rose to 2.64 percent from 1.80 percent at the start of the year. 

The loans slowed substantially compared to its closest competitor. 

The bank on a standalone basis grew its loans by Rs.42.3 billion, an increase of 7.1 percent during the nine months. 

The financials show some cautious approach pursued by HNB in new lending in view of a possible knock-on impact on the asset quality when the rates rise. The short-term rupee loans contracted by about Rs.12 billion during the nine months. 

The bank now has a total loan book of Rs.638 billion and an asset base of Rs.953 billion, an increase of 11 percent. 

Meanwhile, the deposits grew by Rs.76.4 billion or 12.3 percent to Rs.700 billion. 

The current and savings account base of the total portfolio fell a little to 35.3 percent from 36.2 percent at the beginning of the year. 

The bank’s net interest income for the quarter rose by 15 percent year-on-year (YoY) to Rs.11.9 billion, while the net fee and commission income rose by 22 percent YoY to Rs.2.28 billion. 

Meanwhile, for the nine months ended in September 2017, the banking group reported earnings of Rs.26.01 a share or Rs.11.3 billion, up 6 percent YoY. 

The net interest income was Rs.33.9 billion, up 20 percent YoY.  The bank managed to stretch its net interest margin to 4.34 percent from 4.26 percent at the beginning of the year. 

The post-rights issue capital adequacy ratios – both common equity Tier I and Tier II— were reported at 12.91 percent and 16.42 percent, respectively. 

By September 2017, the government controlled a 25.13 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 17.88 percent stake but the voting rights are limited to 10 percent.