HNB reports subdued second quarter; deposits swell

• Loans fall by Rs.15.6bn; deposits surge by Rs.34bn
• Provides Rs.4.6bn for possible loan defaults
• Removal of NBT, DRL helps bank’s earnings

Hatton National Bank PLC (HNB) reported subdued performance for the three months ended June 30 (2Q20) as the pandemic brought the growth in new loans to a standstill while the bank had to forgo income on loans provided with payment holidays amid massive provisions for possible bad loans.

Lockdowns led to HNB’s clients—both retail and corporate—to park their money mostly in savings accounts, which swelled the bank’s deposit base during the three months under review, putting pressure on the margins and net interest income. 

The bank reported net interest income of Rs.12.6 billion for the quarter under review, down 14 percent from the similar period last year, as loans fell by Rs.15.6 billion while the deposits surged by Rs.34.2 billion during the period. 

The bank had to service interest on growing deposits while its ability to yield income from its loans constrained due to a multitude of factors such as contracting of loan base, concessions given on loans under moratorium, re-pricing of existing loans at lower rates and higher amount of suspended interest rates on loans re-categorised as non-performing. 

This pressured the bank’s net interest margin down to 3.91 percent from 4.02 percent in March and 4.50 percent in December 2019. 

The bank had a loan book of Rs.772.5 billion by the end of June 2020, of which 5.9 percent of the loans were categorised as non-performing, largely unchanged from the December 2019 status. 

The bank had a deposit base of Rs.865.3 billion as of June 2020, compared to Rs.810 billion in December 2019, largely due to the aforementioned reason. 

Meanwhile, the bank provided Rs.4.6 billion for possible loan defaults, compared to Rs.2.4 billion in the comparable period last year. It wasn’t clear whether HNB’s June quarter provision had the effects of the moratorium as in the case of some other banks, instead of recognising the impact under the interest income. 

The bank reported earnings of Rs. 4.14 a share or Rs.2.12 billion for three months under review compared to Rs.5.81 a share or Rs.2.97 billion in the comparable period, last year. 
HNB’s earnings would have been further impacted had it not been for the tax benefits granted by way of removal of Debt Repayment Levy (DRL), Nation Building Tax (NBT) and tax exemption on revenue from investments in Sri Lanka Development Bonds, the bank said in an earnings release. 

Meanwhile, the bank reclassified its Rs.47 billion holding in sovereign bonds as amortised cost from earlier classification of financial assets measured at fair value through other comprehensive income. 

But the re-classification had no impact on the interest revenue recognised for the period, the bank noted.