HNB reports solid 4Q amid strong loan growth

• Dec. quarter net profit tops Rs.6bn; full-year net profit at Rs.19bn
• Gives Rs.114.4bn in new loans and advances in 2021; Rs.27.2bn in 4Q
• Improves non-performing loans ratio to 3.38%, from 4.31% at start of 2021

Hatton National Bank PLC (HNB) reported solid performance for the December quarter (4Q21) with improvements in asset quality, margins and return on equity amid robust growth in
new loans.

The second largest private lender by assets reported a net interest income of Rs.15.6 billion for the October-December 2021 quarter, up 26 percent over the same period in 2020, as the interest expense declined while the interest income increased.

The bank’s margins and thereby the top line was buttressed by the large build up of low-cost deposits, which grew by 15 percent in 2021 to account for 41 percent of total deposits. This in turn outweighed the pressure on the interest income that stemmed from the lowest interest rates, which existed through
August 2021.

“Although the interest rates increased subsequent to the 50bps increase in policy rates in August, the average AWPLR for 2021 was approximately 160bps below the rate for 2020,” HNB said in an earnings release.
“This resulted in a decline of 5.1 percent in interest income to Rs.98.6 billion, despite a strong loan growth in the second half of the year. Similarly interest expense reduced by 17.2 percent to Rs.49 billion, resulting in a net interest income (NII) growth of 10.8 percent YoY to Rs.49.6 billion,” it added.

For the three months, the bank reported earnings of Rs.11.51 a share or Rs.6.05 billion, compared to earnings of Rs.8.54 a share or Rs.4.49 billion in the year earlier period,
up 35 percent. 

The bank’s share added Rs.1.25 or 0.91 percent yesterday to close at Rs.139.25.
For the 12 months, the bank reported earnings of Rs.36.18 a share or Rs.19.02 billion, compared to earnings of Rs.24.90 a share or Rs.13.09 billion, up 45 percent. 

Strong earnings helped the bank to improve its return on equity to 12.09 percent, from 8.68 percent at the beginning of the year.

The bank gave Rs.114.4 billion in new loans and advances in 2021, logging a 14 percent growth and Rs.27.2 billion loans came during the final quarter.
The bank said it witnessed a strong loan growth in the second half of the year.

The bank also raised Rs.107.9 billion in new deposits while it saw low-cost deposits rising the most.
This helped the bank to stretch its net interest margin to 3.70 percent, from 3.68 percent at the start of the year. The banking sector emerged stronger during the two years of the pandemic as the Central Bank cut rates to rock bottom levels, stoking heavier demand for new loans while the payment holidays on scores of borrowers affected by the pandemic and the regulatory respite on certain aspects gave them room to blunt the effects of the pandemic.

HNB improved its gross non-performing loans ratio to 3.38 percent by the year-end, from 4.31 percent at the start of the year, recording one of the best asset quality improvements in the sector. The bank however made additional provisions against loans and other financial assets to reflect the continuing risks to its portfolio and as a result, impairment charges rose by 95 percent to Rs.7.7 billion in the quarter. Meanwhile, the bank’s personnel costs fell 40 percent to Rs.2.05 billion in the quarter under review, as it “reassessed the pension fund liability taking into consideration the retirement age revision under the ‘Minimum Retirement Age of Workers Act No. 28 of 2021”.
“This reassessment resulted in a net reversal of liability by Rs.2.2 billion, which was immediately reversed to the statement of profit or loss,” the bank added.

The government holds a 25.88 percent stake in HNB through the Employees’ Provident Fund, Sri Lanka Insurance Corporation, National Savings Bank and Employees’ Trust Fund Board.