HNB provides Rs.400mn for possible losses over investments made through Entrust

Hatton National Bank PLC (HNB) has provided as much as Rs.400 million from its group profits on account of investments made in government securities by one of its subsidiaries through the troubled primary dealer, Entrust Securities.

HNB Grameen Finance Limited, HNB’S microfinance arm, had bought government securities worth of Rs.400 millions through Entrust Securities in the past but the latter got into a chronic liquidity and insolvency crisis during the latter part of 2015 as a result of alleged fraudulent use of funds placed by customers for investment in government securities.

Although the assurances from the Central Bank to settle the investors by way of cash as well as allocation of fresh government securities, HNB acting in prudence, has decided to keep some of its profits away on account of this investment.

In October, last year, the Monetary Board decided to settle investments secured with government securities amounting to Rs.3.1 billion belonging to 107 investors of the embattled primary dealer within few weeks.

In respect of the unsecured investments in Entrust amounting to Rs. 8.5 billion belonging to 24 individuals and entities, government securities will be allocated and be repaid under the repayment plan to be implemented with the managing support of Seylan Bank PLC, the Central Bank said.

This is demonstrated through the financial statement of the HNB group for the April – June quarter (2Q17) where the group has provided Rs.417.2 million under other impairment provisions.

This shows that the HNB management either remains skeptical over the settlement of the investment or expects settlements to take longer than expected.

However, if and when the settlement occurs as per the assurance by the Monetary Board, the bank could reverse this provision and recognize it in the group profit.

The Central Bank on January 4, 2016, suspended the board of directors of Entrust and vested its operations with National Saving Bank to protect investor interest.

In September last year the Financial Crimes Investigation Division (FCID) of the Sri Lanka Police arrested five persons connected to the primary dealer for alleged defrauding of over Rs.4.2 billion. The arrested included Chanuka Ratwatte, who served as the former Chairman and Managing Director of the embattled primary dealer. He is the son of the former Deputy Defense Minister, Anurudda Ratwatte.

According to reports, the firm is alleged to have misappropriated funds of a provident fund in state-run Ceylon Electricity Board, and several funds of the Central Bank.