HNB posts lower 3Q profits despite boost from reduced impairment provisions

Hatton National Bank PLC (HNB) reported lower profits for the September 2024 quarter despite receiving a massive lift from the sharply lower impairment provisions as the bank increasingly sees less risk in re-opening its lending taps as the rates ease and the economy making progress.

The bank set aside Rs.1.82 billion for possible bad loans in the quarter compared to Rs.4.35 billion provided in the same period last year when the economy was still under shackles.  

Apart from improving borrower profiles, there were no more provisions for International Sovereign Bonds (ISB) as the parties agreed to close a deal that they entered into in September 2024 with the government.

HNB carries the largest amount of ISB holdings among the local private sector commercial banks and hence expects the bank to receive a sizable lift from the reversal of such provisions made for such financial instruments when the provisional deal goes through.

The bank reported earnings of Rs.12.63 a share or Rs.7.22 billion for the July – September quarter compared to Rs.15.52 a share or Rs.8.87 billion in the same period last year.

But as the rates fell sharply the bank’s Net Interest Income (NII) too followed suit due to asset and liability re-pricing.

The bank reported a 5 percent decline in the NII to Rs.25.94 billion for the quarter from a year ago as the interest expenses fell sharply than the corresponding decline in the interest income.

The net interest margin – the difference between what the bank receives from its loans and what it pays for their deposits – slid to 4.66 percent from 5.66 percent at the start of the year.

Net fee and commission income meanwhile rose by 22 percent to Rs.4.76 billion, partly offsetting the decline in the NII. The growth in the fee incomes were largely driven by the higher cards and digital transactions as the trade income was relatively lower due to normalizing trade tariffs to pre-crisis levels, the bank said in an earnings release.The bank gave loans worth Rs.64.57 billion in the nine months recording a 6.2 percent growth in its gross loans book but what was notable was that Rs.63.46 billion came in the September quarter.

This was also seen from the growth in the credit to the private sector in the same quarter which showed acceleration as both the banks and the borrowers grew more confident about the economy.

The fact that nearly the entire growth in private sector credit coming in, the September quarter shows that the bank is more willing now than before to re-open its lending taps as they become more confident about the borrowers’ repayment capacity as the rates ease and the economy improves.  

The bank’s Stage 3 loans ratio, the closest proxy for the non-performing loans fell to 3.32 percent from 3.76 percent at the beginning of the year, signaling improving asset quality.

Employees Provident has 9.75 percent stake in HNB being the bank’s second largest shareholder.