Hatton National Bank PLC (HNB) posted a Profit After Tax (PAT) of Rs 2.6 Bn for Q1 2020, representing an increase of Rs 607 Mn over Q1 2019.
Dinesh Weerakkody, Chairman of HNB commented that, “2019 was extremely challenging for the entire banking sector and we welcomed the year 2020 with great optimism. The first two and half months of 2020 didn’t disappoint us. The COVID-19 pandemic which has engulfed the globe, however, has been unprecedented in its impact across the economic spectrum. ”
The Managing Director / CEO of HNB Jonathan Alles, added that “While the performance for Q1 shows a growth from 1Q 2019, it also reflects the challenging environment faced by the banking industry during this period, especially towards the latter part of the first quarter. The measures taken by the Government to relieve the banking sector which was taxed at around 58%, are greatly appreciated, as Such high rates of taxes on the banking sector would have been counter-productive especially at a time like this.”
The interest income of the Bank dropped by 7.2% YoY to Rs 27.2 Bn, due to the drop in AWPLR by nearly 300 bps over the past 12 months up to March 2020. Interest expense also dropped similarly by 3.5% YoY to Rs 15.8 Bn. Accordingly, Net Interest Income for the period was at Rs 11.4 Bn which is 11.9% below the level attained in the corresponding quarter of 2019. Net Fee and Commission Income of Rs 2.1 Bn compared to Rs 2.2Bn in 2019, contributed 14% to the Bank’s Total Operating Income (TOI).
The rupee depreciated significantly since mid-March triggered by COVID-19 recording a deprecation of over 4% during the first quarter. This was reflected in the net other operating income of Rs 1.9 Bn against the Rs 1.1 Bn loss recorded in Q1 2019.
The non-performing advances ratio for the Bank remained flat at 5.9% compared to December 2019. In Q1 2019, the Bank made substantial impairment provisions of Rs 4.1 Bn with asset quality deteriorating industry wide.
Operating Expenses growth remained flat YoY at Rs 5.9 Bn while the Cost to Income ratio also remained almost unchanged from Q1 2019 at 39.65%, well below industry average. Given the challenging operating environment, optimizing cost would remain a key priority this year.
The operating profit before VAT and taxes declined by 13.5% to Rs 4.2 Bn compared to Rs 4.9 Bn in the corresponding period of 2019. The removal of Nations Building Tax (NBT) and Debt Repayment Levy (DRL) with effect from December 2019 and January 2020 respectively resulted in a lower total effective tax rate and contributed to Profit Before Tax (PBT) increasing by 2.4% YoY to Rs 3.3 Bn.
The loan book which remained almost flat in 2019, grew by Rs 12.2 Bn during the quarter to Rs 754 Bn while deposit growth outpaced loans, rising by Rs 31 Bn within the quarter to Rs 841.1 Bn. HNB mobilizes one of the largest CASA bases in the industry, which grew by 6.8% during Q1 to surpass Rs 300 Bn (Rs 304.1 Bn), with the CASA ratio improving to 36.2% compared to 35.2% as at end of December 2019. HNB also continues to be among the best capitalized banks in Sri Lanka, with Tier I and Total Capital ratios at 13.85% and 17.25% respectively as against the present regulatory minimum requirements of 8.50% and 12.50% applicable as a domestic systemically important bank.
All HNB Group companies contributed to the Group PAT of Rs 3.3 Bn which improved in line with the performance of the Bank. The Bank recorded a ROA of 0.93% while the Group ROA was at 1.09%. The Group’s total asset base expanded by Rs 22.6 Bn during the quarter, representing a 1.9% increase since December to Rs 1.2 Trillion.
Commenting on how HNB has responded to the COVID-19 situation, Jonathan Alles stated that “Q1 2020 ended in the height of COVID-19 and I would like to extend my heartfelt gratitude to my team for the remarkable commitment and resilience demonstrated over the past two months. As an essential service, we continue to operate in curfew and non-curfew areas as per the guidelines issued by the Central Bank.
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