HNB delivers big in 2015; profits cross Rs.10bn mark 

Hatton National Bank (HNB) group recorded net profit (equity holders of the bank) of Rs.10.5 billion for the year ended December 31, 2015 (FY15), up 7 percent year-on-year (yoy) and a net profit of Rs.3.57 billion for the fourth quarter (4Q15), the interim financial accounts showed.

The basic earnings per share (EPS) for the year improved to Rs.26.09 while the quarterly EPS stood at Rs.9.41.

The pre-tax profit for the year was Rs.16.2 billion, up 23 percent yoy and the after-tax profit stood at Rs.11 billion, up 10 percent yoy. 

At the bank level, HNB posted a profit before tax of Rs 15 billion and a profit after tax of Rs 10.4 billion for the same period. 

“This is the first time the bank surpassed the Rs 10 billion landmark in PAT, driven by a more than 25 percent growth in both advances and deposits,” HNB said in a statement.  

Commenting on the performance HNB Managing Director/CEO Jonathan Alles said: “We are pleased to share our performance that surpassed many milestones during the year. The Bank’s profit before VAT and tax improved to Rs 17.9 billion, whilst profit after tax surpassed Rs 10 billion during the year. 

Both advances and deposits of the bank increased by over Rs 100 billion, once again the highest in the bank’s history whilst the NPA ratio improved to 2.43 percent, the lowest in the past few decades. It is significant that this NPA was achieved whilst attaining a loan growth of 26 percent and was a result of the proactive efforts and commitment of our recovery teams at head office and across the country.”

The growth in advances was propelled by a 30 percent growth in corporate banking, 25 percent growth in SME, 65 percent growth in leasing and a 67 percent growth in personal loans. 

The bank’s CASA ratio also remained strong at 42 percent, despite the shift witnessed from low cost deposits towards higher yielding fixed deposits during the year.

These efforts resulted in net interest income (NII) for the bank growing by 5.8 percent to Rs 26.3 billion, despite the banking sector margins continuing to drop during 2015. As at end 2015 the bank maintained a net interest margin (NIM) of 4.5 percent. 

The group witnessed a higher growth in NII of 14.3 percent to Rs 29.7 billion as a result of the bank’s acquisition of Prime Grameen Micro Finance during the latter part of 2014, now rebranded as HNB Grameen. 

HNB Grameen has become a formidable force in the micro finance industry in Sri Lanka with the company witnessing its loan book growing by 66 percent and deposits by 46.4 percent during 2015.
The bank’s commission income for 2015 grew by 18.4 percent to Rs 5.8 billion with major contributions coming from merchant acquisitions, guarantees and trade business. 

Fee income generated from electronic channels too witnessed significant growth during 2015. The group witnessed its fee income growing by 23.1 percent with the commission income from HNB Grameen and Acuity contributing significantly and complimenting the performance of the Bank on commission income.

During the year 2014, the bank realised a capital gain of Rs 889 on account of the sale of shares held in Visa Inc and MasterCard. The absence of any realised capital gains from equity investments in 2015, resulted in lower net gain from financial investments for the period under review.

 The volatility of exchange rates during the year and the significant depreciation of the Rupee, aided the bank to record substantial growth in exchange income.  

Accordingly, the bank recorded a total operating income of Rs 34.8  billion for 2015, while the group recorded Rs 42.6 billion with a growth of 12.7 percent for the same period.

The bank’s process improvement and cost optimization initiatives over the recent years, saw operating expenses contained to a marginal 3.9 percent increase. This is one of the lowest cost increases the bank has witnessed during the recent past. 

“It is pertinent to mention that this was achieveddespite 2015 being a year for collective agreement where salaries of non executive staff wererevised, continuing to retain HNB’s superior rewards position in the market,” HNB said. 

The cost increase reported by the group is higher at Rs 22.5 billion, which is a 13.8 percent increase from 2014. This is as a result of the additional cost that came about through the consolidation of HNB Grameen and due to the high claims ratio witnessed by HNB General Insurance for 2015.

The bank improved its cost to income ratio to 45.95 percent in 2015 compared to 47.41 percent in 2014 which is a significant achievement during the year. 

The bank was successful in reducing the NPA ratio to 2.43 percent compared to 3.16 percent recorded in the previous year and 3.2 percent reported by the industry in 2015. As a result the impairment charges for the bank reduced significantly by 62.6 percent to Rs 0.9 billion.

The bank’s effective tax rate increased to 30.6 percent from 25.4 percent recorded in 2014. 

During 2014 the bank received several tax credits resulting in the effective tax rate being low. In addition, the bank paid Rs 2.1 billion as super gain tax resulting in a total tax charge of approximately Rs9.5  billion for 2015.

The bank recorded a return on asset (ROA) of 1.6 percent and return on equity (ROE) of 16.6 percent.
HNB has been able to enter into long term funding agreements with reputed development financial institutions and multilateral funding agencies such as the ADB, DEG and Proparco.

The bank was able to supplement its deposit growth with US $ 185 billion in borrowings through these agreements. These funds raised have been mainly utilized towards financing SME and infrastructure development projects.

The significant growth in the loan book and the super gains tax of Rs 2.1 billion paid during 2015 resulted in the bank’s tier 1 and tier 2 ratios dropping by 162 bps and 2.13 bps to 10.53 percent and 12.70 percent respectively as at December 31, 2015.

The bank declared a final divided of Rs 7.00 per share consisting of a cash dividend of Rs3.50 and scrip dividend of Rs 3.50 per share, while in December it made an interim dividend of Rs 1.50 per share. As such the total gross dividend on account of profits made in 2015 amounts to Rs 3.4 billion.