HNB Group ups pre-tax profits by 22 % to Rs.5.8 b

Despite persisting pressure on margins Hatton National Bank Plc has continued to post strong growth with Pre-tax profit increasing by 22per cent to Rs. 5.4 billion and Post tax profit increasing by 31 per cent to Rs. 3.6 billion during the first nine months of 2011.

During the first nine months of 2011, the bank recorded an impressive credit growth of 24 per cent increasing the total loan book to Rs. 259 billion by Rs. 50 billion.  This is an outstanding 36 per cent increase yoy driven by contributions from all segments. As a result, interest income from loans and advances increased by 16 per cent during the first nine months despite the lower yields.  

Total deposits increased by Rs. 32 billion recording a 13 per cent growth during the first nine months of 2011 to Rs. 272 billion while maintaining CASA (current and savings accounts as a percentage of total deposits) at 50 per cent.   The bank managed to curtail the increase in interest expense on deposits to one per cent during the first nine months of 2011, backed by the low cost deposit base and the prevailing low interest rates.

However, the interest expense on other interest bearing liabilities increased by Rs. 675 million as a result of increased other borrowings to support the expansion in credit.



Overall the net interest income of the bank improved by six per cent to Rs. 12 billion during the first nine months of 2011 compared to the corresponding period last year.

The fee and commission income recorded a 34 per cent growth during first nine months of 2011 compared to the corresponding period of 2010. Nevertheless the investment income saw a decline of Rs. 624 million ie. by 63 per cent, over first nine months of 2010, due to the capital gains made in 2010 on account of sale of shares in Commercial Bank of Ceylon PLC, Distilleries Company of Sri Lanka PLC, Lanka Ventures PLC and Acuity Securities Ltd not being present in 2011, as well as the mark to market losses during 2011 in investments in equity and government securities as a result of adverse market conditions.

Foreign exchange income witnessed a marginal growth of three per cent during the period. Thus, the total non-interest income improved by three three per cent to Rs. 3.9 billion.

The Bank was successful in managing its costs with only 5per cent increase in staff cost, despite the expansion in the distribution network by 27 customer centres during the 12 month period up to end September 2011. Nevertheless total non-interest expenses have increased by 10per cent mainly as a result of the deposit insurance scheme which was introduced in October 2010 by the Central Bank to safeguard the depositors. The charge on the deposit insurance scheme contributed to 26per cent of the increase in expenses for 2011 compared to the corresponding period of 2010.

The asset quality improved over the previous quarter of 2011, with Gross NPA improving to 4.37 per cent from 4.74 per cent and Net NPA improving to 2.49 per cent from 2.68per cent, due to prudent credit and risk management policies.

Through the capital augmentation plan of HNB to support the expansion in loan growth, the Bank has raised approximately Rs. 8 billion both core capital and tier II capital during the past quarter and hence, the capital adequacy position has significantly improved over the last quarter of 2011 with core capital ratio improving from 9.13 per cent to 11.82 per cent and total capital adequacy ratio from 10.30 per cent to 13.65 per cent as at end of Q3 2011.

The HNB Group comprising mainly of the insurance subsidiary, HNB Assurance PLC, the investment banking joint venture Acuity Partners Pvt Limited and property development subsidiary Sithma Development contributed to achieve a pre-tax profit of Rs. 5.8 billion for the first nine months of 2011 recording a 23 per cent growth and a post tax profit of Rs. 3.9 billion for the first nine months of 2011 recording 33 per cent increase over the corresponding period of 2010.