HNB 2Q earnings soar amid significant reduction in impairment charges

Hatton National Bank PLC, Sri Lanka’s second largest private bank in terms of assets, reported higher earnings for the quarter ended June 30, 2023 (2Q23) on strong core banking performance and significant decline in impairment charges.
The banking group reported earnings of Rs.4.3 per share or Rs.2.36 billion for the quarter under review compared to earnings of Rs.1.56 per share or Rs.871.4 million reported for the corresponding period last year.

For the first half of 2023 (1H23), the banking group reported earnings of Rs.16.89 per share or Rs.9.45 billion compared to earnings of Rs.10.38 per share or Rs.5.8 billion reported for the same period last year.
During 2Q23, the banking group reported net interest income of Rs.31.4 billion, up 24 percent year-on-year (YoY), as a result of higher interest rates in the economy. Interest income rose 75 percent YoY to Rs.81.2 billion.

Net fee and commission income fell slightly by 4 percent YoY to Rs.3.8 billion.
The banking group reported net losses of Rs.1.34 billion from trading during the quarter under review, against a trading gain of Rs.2.27 billion a year ago. For the first half, such losses were recorded at Rs.8.59 billion against a gain of Rs.9.7 billion a year ago.
HNB said currency volatility caused the bank to record a net exchange loss of Rs 3.8 billion for 1H23, primarily stemming from revaluation losses of FCBU retained earnings. 
Total operating income for the period was Rs.37.5 billion, down 8 percent YoY.

However, with the sharp decline in impairment charges on possible bad loans and foreign currency denominated government securities to Rs.17.7 billion from Rs.27.2 billion a year ago, the net operating income of the banking group improved 47 percent YoY to Rs.19.7 billion.
The banking group saw its loan book contracting by 8 percent during the first half of 2023 by 8 percent to Rs.899.3 billion amid tight credit conditions and exchange rate volatility.
The banking group’s total asset base increased by 8 percent to Rs.1.94 trillion from the end of 2022. The deposit base expanded by 5 percent to Rs.1.47 trillion.
The bank’s state 3 loan ratio stood at 4.77 percent as at end June 2023 against 3.4 percent at end December 2022, indicating deterioration in the bank’s asset quality.

Compared to  1Q23, HNB recorded stronger Tier I and total capital adequacy ratios of 12.48 percent and 15.58 percent against the minimum statutory requirements of 9.5 percent and 13.5 percent respectively, with the provision to drawdown a further 250bps from the capital conservation buffer. 
HNB’s liquidity levels also continued to be strong and well above the regulatory minimum requirements.
Employees’ Provident Fund (EPF) has 9.75 percent stake in HNB as the second single largest shareholder. 
During 2Q23, Invenco Capital Private Limited and Union Assurance PLC- Universal Life Fund entered the top 20 shareholders of HNB with 0.81 percent and 0.62 percent stakes respectively.