Hatton National Bank released its first half results for 2009 showing an impressive 13% growth in the Bank’s profit after taxation, which amounted to Rs. 1.77 Bn. The Bank was also recognised recently as the "Best Bank in Sri Lanka" by Euromoney Magazine for its financial stability and consistent performance.

The Bank recorded a top line growth of 12 % to Rs 19.8 Bn., with main contribution coming from interest income. Interest income for the period under review grew by 16% which was driven mainly by interest from investments in fixed income securities.  Interest expenses also witnessed a 15% increase mainly from the growth witnessed in customer deposits. The Net Interest Income for the Bank amounted to Rs. 7.09 Bn reflecting an impressive 18% growth from the corresponding period last year.

A drop of 18%was witnessed in income from foreign exchange as a result of the decline witnessed in foreign trade as well as stringent regulations imposed for booking forward exchange which resulted in a significant drop in forward booking of currencies.
Income from investments also depicted a marginal drop of 9% compared to 2008, due to the absence of the one off dividend amounting to Rs.225 Mn paid by HNB Securities Ltd in the second quarter of last year as part of the restructuring process that took place with the establishment of the new joint venture investment bank.
The cost management initiatives that were put in place continued to payoff with operating expenses increasing by just 14% compared to last year. The Bank will continue to focus on improving productivity and managing cost in its efforts to reduce the cost to income ratio.

The Bank made Rs. 381 Mn as specific provisions during the period which is 11% higher than last year. However a decline in general provisions was witnessed compared to 2008 as the loan book contracted during the period under consideration decreasing the general provisioning requirement, while last year the Bank accelerated its general provisioning to meet the 1% Central Bank regulation prior to the deadline of 31st March 2009.  The gross NPA ratio of the Bank increased to 8.7% which was reflective of the Banking Industry in the Country experiencing a drop in asset quality in the recent past due to slowdown in economic activity.  However, HNB continues to maintain a high provisioning cover of 56%, well above the industry average, as a result of prudent provisioning policies which has enabled the Bank to maintain the net NPA ratio at 3.86%

 The Bank’s total tax provision continued to rise this year with value added tax increasing by 22% and corporate tax rising by 34% compared to the corresponding period last year. As a result the effective tax rate (including financial VAT) of the Bank surged to 53% compared to 50% in 2008.

The slowdown in economic activities in the Country has significantly reduced the demand for private sector credit, this coupled with the stringent risk management policies introduced by the Bank have contracted the net loans and advances portfolio by 6% to Rs 165 Bn. in the first half of 2009.  However with curtains coming down on the three decade old civil war the prospects for the second half seems much brighter. The Bank has already started to leverage on it existing presence of 16 customer centres in the North and East provinces to participate in the post war development activities. The Bank has obtained approval to further expand its presence in these regions over the next 12 months.

As a testimony towards the confidence placed by the public in the financial strength and stability of HNB, the deposit base continued to grow by over 6% enabling the Bank to boast of surpassing Rs. 200 Bn mark in customer deposits by end June 2009.  Furthermore, Fitch Ratings Lanka recently affirmed HNB’s long term rating at AA- (lka), which is reflective of the Bank’s sustained profile in terms of good profitability, asset quality and capitalization among local commercial banks.

HNB’s Group profits too witnessed significant growth of 31% for the first half amounting to Rs 1.71 Bn driven by the robust performance shown by the Bank as well as  its insurance subsidiary HNB Assurance Ltd. HNB Assurance profits grew by a significant 37% YoY, showing its emergence as a strong force in the insurance industry. With the recent resurgence in the Country’s capital markets, the newly formed investment Bank, Acuity Partners is likely to make a bigger contribution towards the Group performance in the latter half of the year. The Exchange Houses opened by the Bank in Oman and Abu Dhabi during late last year and early part of this year are yet to make a positive contribution towards the Group profits. The Bank in July this year started commercial operations of its third Exchange House named Delma Exchange, which is located in Toronto, Canada.