HNB posts strong 3Q despite higher credit costs, taxes
Hatton National Bank PLC (HNB) posted strong profits for the three months ended September 2018 (3Q18) on growth in new loans, albeit moderating from the previous quarter, while significant increases in credit costs and taxes were seen.
The bank reported earnings of Rs.4.77 billion or Rs.9.68 a share for the Julyseptember quarter, compared to Rs.4.1 billion or Rs.8.82 a share reported in the year earlier period, which is a 17 percent increase.
This is despite the substantially higher provisions made for possible bad loans made by the bank.
The provisions made for individual borrowers rose to Rs.1.1 billion, from Rs.386.1 million a year ago, while the provisions made for the whole portfolio rose to Rs.694.2 million, from Rs.546.2 million, a year ago.
The asset quality weakened slightly as the gross non-performing loan ratio increased to 3.10 percent, from 2.28 percent, a year ago.
The bank gave Rs.23.8 billion worth of new loans during the three months, demonstrating a moderation from the previous two quarters. The total new loans for the nine months stood at Rs.82.4 billion or 12.7 percent.
Meanwhile, the Value-added Tax (VAT) and Nation Building Tax on financial services rose by 24 percent year-on-year (YOY) to Rs.1.7 billion, while the corporate income tax rose by as much as 44 percent YOY to Rs.2.5 billion.
Sri Lanka’s banking sector could not escape from the higher non-performing loans and taxes due to higher interest rates prevailed in the economy and the additional taxes imposed on the banks by the new Inland Revenue Act.
Higher interest rates help banks to increase their margins but they come at the cost of the growth and non-performing loans.
HNB had a net interest margin of 4.58 percent, compared to 4.25 percent at the beginning of the year.
Meanwhile, the bank’s net interest income grew by 15 percent YOY to Rs.13.7 billion, while the net fee and commissions rose by 10 percent YOY to Rs.2.5 billion.
For the nine months ended September 30, 2018, the bank reported earnings of Rs.13.9 billion or Rs.28.25 a share, compared to Rs.11.3 billion or Rs.25.79 a share reported for the same period, last year, an increase of 23 percent.
The net interest income for the nine months was Rs.38.7 billion, up 14 percent YOY.
During the nine months, the bank mobilized deposits of Rs.74.8 billion of which close to half or Rs.35.1 billion came during the final three months.
The government controls a 25.12 percent stake in HNB through the Employees’ Provident Fund, Sri Lanka Insurance Corporation Limited and National Savings Bank. Harry Jayawardena-controlled Milford Exports Ceylon Limited, Stassen Exports Limited and Distilleries Company of Sri Lanka collectively has a 17.83 percent stake in the bank but their voting rights are limited to 10 percent.