HNB reports strong 1Q on higher margins despite absence of growth

Hatton National Bank PLC (HNB) reported solid financial performance in the three months to March 2023 (1Q23), on the back of fattened margins as rates soared last year, giving a boost to the net interest incomes of banks but the growth turned negative as they tightened credit standards. 
Sri Lanka’s second largest private sector bank reported a net interest income of Rs.34.82 billion in 1Q23, up 84 percent year-on-year (YoY). 
The net interest margin rose to 7.35 percent, from 6.40 percent at the end of last year. 
The bank reported fee incomes of Rs.4.55 billion, up 31 percent from a year ago, due to higher card volumes and increased adoptions of digital services. 

“The positive sentiments brought on by the IMF programme and the improved foreign exchange liquidity, gave way to a part relaxation of foreign exchange controls,” HNB said.  
“This led to the appreciation of the Sri Lankan rupee by approx. 10 percent during the three months up to March 2023. This resulted in the bank recording a net exchange loss of approximately Rs.2.0 billion for the quarter, due to revaluation losses,” it added.
The bank meanwhile set aside Rs.11.71 billion as possible losses, down from Rs.13.54 billion in the same period in 2022. 
“This consisted of impairment on loans and advances and other off-balance sheet exposures of Rs.6.7 billion and impairment of Rs.4.7 billion on foreign currency-denominated government securities,” HNB said.
The bank saw its operating expenses rising by 28 percent YoY to Rs.15.21 billion, due to runaway prices in the economy. 
On this backdrop, the bank reported earnings of Rs.12.66 a share or Rs.7.09 billion for the first quarter, compared to Rs.8.82 a share or Rs.4.94 billion in the same period in 2022. 
This translated into a robust 44 percent growth.
The bank’s share added Rs.3.25 or 2.74 percent to close at Rs.122, yesterday.
HNB saw a degrowth of Rs.44.83 billion in loans in the three months to Rs.1,016.54 billion, as it tightened its credit standards and was very selective in loaning money.
The deposits rose by Rs.29.44 billion to Rs.1,437.24 billion as the bank raised deposits to build liquidity. 
The bank’s liquidity and capital standards remained well above the regulatory minimums.
HNB reported a Stage 3 loans ratio of 3.82 percent, slightly higher from 3.40 percent three months ago. 
As at March 31, 2023, Browns Investments PLC had 9.99 percent in HNB while the government held a 25.88 percent stake through the EPF, Sri Lanka Insurance, National Savings Bank and the ETF.