HNB continued to post robust results in Q1 of 2012, driven by expansion in core banking operations amidst challenging business environment with rising interest rates and depreciation of the rupee. HNB's pre-tax profits grew by 25% to Rs. 2.1Bn while the group pre-tax profit also increased by 25% to Rs. 2.29Bn.
Commenting on the performance, Dr.Ranee Jayamaha the Chairperson of HNB PLC stated that "despite the challenging business environment, with tight monetary policy and restrained credit growth, HNB performed commendably during the first quarter of 2012".
Pressure on liquidity experienced by the Banking Industry continued in to 2012, however HNB successfully managed to raise over Rs. 21.5Bn in tier I, tier II capital and long term senior debt since mid-2011 with funds totalling to US$ 75Mn raised so far in 2012 from foreign sources.
With demand for credit continuing to be high in Q1 2012, HNB cautiously expanded its loan portfolio recording a growth of 8% during the first 3 months of 2012, to reach Rs. 284 Bn as at end of Q1 2012.The loan book grew by Rs. 62Bn during the 12 months up to end of March 2012 leading to a 35% increase in interest income from loans and advances. The deposit base also saw an increase of 7% during Q1 2012 while a shift towards fixed deposits was observed due to the rising trend in interest rates. The deposit base saw an increase of Rs. 60Bn during the 12 month period from April 2011 to March 2012 with an increase of 46% in interest expenses in Q1 2012 mainly due to re-pricing of deposits at higher rates of interest. Nevertheless, due to prudent asset and liability management, net interest income improved by 16% during the period under review.
Foreign exchange income recorded an impressive growth of 71% driven by fluctuation in exchange rate while 'Other income' too recorded an increase of 52% primarily on account of the increase in commission income. Furthermore, the contribution from non-interest income to net income increased to 26% from 21% in March 2011.
Despite adding 34 new branches to the distribution network during the one year period up to March 2012, personnel expenses increased by only 5%, while total operating expenses increased by 10%. Further, the marked to market loss on the equity trading portfolio also increased to Rs.65 Mn during the period under consideration due to bearish conditions in the Colombo Stock Exchange. Nevertheless, the Bank was successful in bringing down its cost to income ratio to 53.0% by end of Q1 2012 from 57.7% in December 2011.
Mr.Rajendra Theagarajah Managing Director / CEO of HNB PLC stated that, "expansion plan initiated by the Bank adding 55 customer centres to the network since early 2010 with a minimum increase in staff strength has derived impressive results for the Bank. In the current year, HNB will continue to focus on consolidating its network and leveraging on key strengths".
Profit after tax of the Bank improved by 27% to Rs. 1.4Bn, while the group post tax profit also recorded a growth of 28% to Rs. 1.5 Bn. The performance of the insurance subsidiary HNB Assurance PLC, the joint venture investment bank Acuity Partners (Pvt) Ltd as well as the property development subsidiary Sithma Development (Pvt) Ltd contributed towards the growth.
Gross NPA ratio stood at 4.3% compared to 5% in March 2011 while the capital position was strong with tier I Capital ratio at 11.7% and total capital ratio at 13.35% as at 31st March 2012.
During the period under review HNB became the first domestic bank to obtain an international rating from Moody's Investors Service and was assigned a foreign currency issuer rating of B1, on par with the sovereign rating.
HNB was also recognized as the 'Best Retail Bank in Sri Lanka' by the Asian Banker for the fifth consecutive year at the 11th Excellence in Retail Financial Services Awards held in March 2012.