HNB records sustainable performance in FY23

Hatton National Bank PLC (HNB) for the financial year 2023 has delivered sustainable performance across liquidity, asset quality, capital, efficiency, and profitability amidst challenging global and local economic conditions.

As per the financial statements disclosed to the Colombo Stock Exchange (CSE), the bank’s interest income experienced a YoY growth of 37.2 percent, reaching Rs 284.1 billion despite the decline in AWPLR by approximately eight percentage points during the last two quarters of the year. This in line with Central Bank’s expansionary monetary policy. 

Although deposits rates also declined in line, the 12.2 percent growth in deposits and the term deposits mobilised at higher interests resulted in Interest expense increasing by 72.6 percent to Rs. 179.8 billion. The resultant net interest income expanded by 1.4 percent YoY to Rs. 104.3 billion.

The bank’s net fee and commission income increased by 4.4 percent year-on-year to Rs. 15.8 billion, driven by higher credit card usage, improved remittances, and increased adoption of digital banking services. Despite this growth, increased SWAP volumes and the revaluation of on-balance sheet assets with the appreciation of the Sri Lankan Rupee led to a net exchange loss for the period. 

Additionally, the bank increased its impairment cover to 52 percent from 35 percent on a prudent basis, with an additional provision of Rs. 38 billion during the year, having provided Rs. 73 billion on investments in foreign currency denominated government securities up to 2022.

The bank saw signs of asset quality recovery in the second half of the year as economic conditions improved. Despite this, it maintained a cautious provisioning approach due to global and local economic uncertainties, keeping its provision cover at 57.5 percent. 

The net stage 3 ratio improved to 3.76 percent from 4.90 percent in September 2023, remaining above the industry level. However, total operating expenses increased to Rs. 35.5 billion from Rs. 30.4 billion due to inflationary pressures, resulting in a cost-to-income ratio of 29.9 percent compared to 22.0 percent in the previous year. 
The bank’s total effective tax rate also increased to 52.5 percent, reflecting the impact of the increase in corporate tax rate from 24 percent to 30 percent and the introduction of the social security contribution levy of 2.5 percent from October 2022.

The bank recorded a profit after tax of Rs. 20.35 billion compared to Rs. 14.0 billion recorded in 2022 while the Group recorded a PAT of Rs. 23.6 billion compared to Rs. 15.7 billion in the previous year. 
The Board of Directors has proposed a final dividend of Rs. 8.00 per share, which consist of a cash dividend of Rs. 4.00 per share and a scrip dividend of Rs. 4.00 per share, for both voting and non-voting shares.

Commenting on the performance for the financial year 2023, Nihal Jayawardene, Chairman of Hatton National Bank PLC, said: “The Board continued to maintain focus on key risk areas and the opportunities, to navigate through the uncertainty in the operating environment. This enabled us to record robust performance overall”

Jonathan Alles, Managing Director / Chief Executive Officer of HNB PLC pointed out that during these most challenging and uncertain times the Bank has focused on sustainable growth ensuring the safety of depositors, facilitating access to finance and business revival for customers, providing fair rewards and recognition for employees, and offering investors a reasonable return for the assumed risk.

“Inspiring our customers to move forward with optimism is key to growth and we set out to understand and address customer pain points. We also supported our customers through the pandemic, the financial crisis and its aftermath, keeping businesses afloat by restructuring loans, offering moratoria and even grants for micro entrepreneurs,” he said.  

HNB has always aligned its strategy to the country’s needs and is committed to charting a course that delivers shared prosperity to Sri Lankans and supporting the Country’s transition to a low carbon economy. Areas identified for growth include tourism, exports, renewable energy, healthcare, education, information technology, local manufacture and agriculture.

Alles stressed that growth must be resilient, built on solid foundations of disciplined financial management and sound corporate governance. It is the need of the hour at individual, entity and government levels as we stand up not just for our rights but to honour our obligations as well.

The Bank’s asset base expanded at 14.4% YoY to Rs 1.9 Trillion as at end of December 2023. However, the Bank witnessed a contraction in gross loan book of 1.8% due to sluggish demand for credit and the cautious approach adopted during the first half with interest being relatively high. On the other hand, the total deposits of the Bank continued its growth trajectory, expanding by 12.2% YoY to Rs 1.6 Trillion.

The Bank reported strong Tier 1 and Total Capital Adequacy ratios of 13.66% and 17.13% against the minimum statutory requirements of 9.5% and 13.5% respectively, with the provision to drawdown a further 250 bps from the Capital Conservation Buffer. The Bank has continued to maintain a strong liquidity position with a Statutory Liquid Asset Ratio of 48.2% and an all currency Liquidity Coverage Ratio of 445.9%, which are both well above regulatory minimum requirements of 20% and 100% respectively.