HNB weathers pandemic; sees modest loan growth in 3Q

Hatton National Bank PLC (HNB) reported lower net interest income during the three months to September (3Q20) as growth in loans was just coming through after ebbing in the previous quarter, but it wasn’t enough to offset the cost of the soaring deposits amid pressure on margins. 

The second largest private lender by assets recorded net interest income of Rs.12.6 billion in the three months, down 8 percent from the year earlier period. 

Out of the Rs.12.0 billion net growth in the bank’s loan book for the entire nine months, Rs.11.4 billion came in the quarter under review, which could be an indication that the bank was beginning to see growth in loans after months of negative growth. 

Deposits surged by Rs.57.2 billion during the three months, taking the nine-month increase in the deposit portfolio to Rs.112.5 billion. 

The bank’s net interest margin was little changed at 3.85 percent in September compared to June’s 3.91 percent but down from 4.50 percent at the start of the year as continuous easing of monetary policy put pressure on market interest rates to drop. 

The bank set aside Rs.2.8 billion for possible loan defaults and impairments on other financial assets in the quarter, up from Rs.2.1 billion in the same period last year. 

The sovereign rating downgrade by Moody’s Investors Service on September 28 triggered an additional impairment of Rs.427 million on the bank’s investments in foreign currency denominated government bonds. 
“Bank’s policy is to account for impairment of FCY denominated government securities based on Fitch rating.

However, bank has incorporated Rs.427 million based on specific percentage of impairment out of the impact due to sovereign downgrade by Moody’s Investors Service in September, in the financial statements for the nine months ended 30th September 2020, in a proactive manner applying the concept of Expected Credit Loss,” notes to HNB’s interim financial accounts said.

The bank reported earnings of Rs.6.71 a share or Rs.3.44 billion for the July-September quarter compared to Rs.6.81 a share or Rs.3.49 billion in the comparable period last year. 

The absence of Debt Repayment Levy and Nation Building Tax on financial services saved about Rs.900 million from earnings during the quarter. 

The bank reported bad loan ratio of 6.51 percent, up from 5.9 percent at the end of 2019, but a settlement of Rs.11.5 billion due from a State-owned enterprise in October brought down the ratio to 5.09 percent, HNB said.