HSBC Lankan unit March profits down on tighter margins, slower loan growth

The Sri Lankan unit of the global banking giant, Hongkong and Shanghai Banking Corporation Limited (HSBC), saw its bottom line narrowing for the quarter ended March 31, 2017 (1Q17) amid tighter margins, a contracting loan book and lower other income gains.

According to the financial results published in local newspapers, the bank reported earnings of Rs.1.8 billion for 1Q17, down by a little over 5.0 percent year-on-year (YOY).

The core banking operations were seen adversely impacted by a sizeable contraction in the loans and advances book as the total loans fell by about Rs.13 billion, with the bulk of the settlements coming from the foreign loan portfolio. The bank’s credit card portfolio also fell by about Rs.300 million, most likely due to HSBC cardholders opting for better deals offered by the local banks.

HSBC is the largest player in the local credit card market with an outstanding balance of Rs.20. 2 billion followed by Nations Trust Bank PLC, a unit of John Keells group.

The rising interest rates also appear to have affected the bank’s performance as net interest income grew only by a modest 4.9 percent YOY to Rs.4.2 billion as interest expenses rose at a faster pace compared interest income.

The net interest margin fell to 4.11 percent from 4.24 percent in December 2016.

The gross non-performing loan ratio rose to 1.06 percent from 0.90 percent, probably due to the contraction in the loan book.

The net commission and fee incomes also dropped by 5.3 percent YOY to Rs. 689.2 million, which could be attributable to the contraction in loans.

The deposits grew by about Rs.9.7 billion to Rs.192.9 billion while the low cost deposits measured by current and savings account (CASA) ratio was 47 percent by March 31, 2017, slightly up from 45.6 percent a quarter ago.

The borrowings from banks rose by about Rs.8.0 billion during the quarter to Rs.143.6 billion.

HSBC also has a sizable investment in government securities, mainly in treasury bonds. During the quarter, the bank invested about Rs.21 billion in treasury bills and bonds while increasing the available-for-sale (AFS) financial assets by a similar amount to Rs.142.7 billion.

The bank could invest its funds in government securities as it operates with higher excess liquidity due to the slower growth in the loan book.

During the quarter under review, the bank made a marked-to-market loss of Rs.216.6 million on its AFS investments, which is significantly lower than the Rs.3.3 billion loss made YOY.

Such investments in the trading portfolio made a gain of Rs.639.7 million, down from Rs.773.1 million YOY.

HSBC Sri Lanka unit has an asset base of Rs.415.6 billion and operates with 1,251 employees and 15 branches located mainly in metropolitan areas.