HNB December profit up 14% to Rs.4.1bn; full-year net up 40%
Sri Lanka’s second largest private lender, Hatton National Bank PLC (HNB), made earnings of Rs.4.1 billion or Rs.9.86 a share for its December quarter (4Q16) recording an increase of 14 percent, the interim results filed with the Colombo Stock Exchange showed.
The banking group saw its performance being challenged by the rising cost of funds but managed to record a slightly higher margin due to timely repricing of its assets and liabilities and strong growth in loans.
The net interest margin rose by about 16 basis points to 4.26 percent during the year but the low-cost deposit base – current and savings account ratio (CASA) – narrowed to 36.2 percent from 41.4 percent.
The net interest income (NII) rose by 36 percent year-on-year (YOY) to Rs.10.7 billion. The difference between the growth in the interest income and interest expenses at HNB was much narrower than some of its rivals.
The return on equity – a widely used performance measure in the banking sector – rose to 20.24 percent from 16.77 percent last year. Meanwhile, for the year ended December 31, 2016, the banking group reported earnings of Rs.35.73 a share or Rs.14.8 billion, up 40 percent.
The NII grew by 32 percent to Rs.39.1 billion on the back of a 16.9 percent growth in the loan book.
The loans and receivables of HNB grew by Rs.86 billion to Rs.595.5 billion. HNB appears to have pinned most of its hopes on housing loans in 2016 to drive its growth after the vehicle market slowed down. During the year, the housing loans grew by 3.1 billion. This pushed up the assets of the bank to Rs.858.9 billion – the second highest assets by a private lender in Sri Lanka.
The deposits grew by 18.3 percent or Rs.96.4 billion to Rs.623.5 billion. The bank also raised Rs.13 billion from two subordinated debt issuances in 2016. The bank also raised US $ 100 million through a foreign bank to support its lending growth.
Meanwhile, the cost-to-income ratio—the key efficiency parameter of the bank—has improved by 344 basis points to 42.51 percent, HNB said in a post-earnings release. The net loss from trading was as high as Rs.1.8 billion in 2016, which the bank attributed to “higher swap cost incurred during the year on swaps taken to hedge foreign currency borrowings”. However, the mark-to-market loss of its stock (60 percent) and government securities (40 percent) portfolio under the available-for-sale category rose to Rs.3.3 billion from Rs.2.5 billion.
The bank’s asset quality was among the industry highest as the gross non-performing loan ratio further declined to 1.80 percent from 2.43 percent last year. The bank remained well capitalized with its Tier I and Tier II capital adequacy ratios remaining at 11.22 percent and 15.27 percent, respectively.
As of December 31, 2016, the government held up to a 27.3 percent stake in the bank through the Employees’ Provident Fund (9.78 percent), Sri Lanka Insurance Corporation (14.64 percent) and National Savings Bank (2.88 percent).
The global asset manager, Franklin Templeton Investment held a 3.35 percent stake being the eighth largest shareholder and Norges Bank, the world’s biggest sovereign wealth fund, had a 1.08 percent stake being the 13th largest shareholder.