Hatton National Bank (HNB), its subsidiaries and associate companies continued with its impressive performance for the third consecutive year in 2007 by reporting a 47.5% increase in pre tax profits to Rs. 4,566 Mn. Post tax profit attributable to the group was Rs 3,199 Mn which was a 40.5% increase over 2006. Commenting on the results, HNB’s Managing Director Rajendra Theagarajah said “ We are delighted to be able to deliver such results especially against the backdrop of a domestic environment which saw inflation nearing the 20% level during the latter part of 2007. The consistency in our performance during the past three years amply demonstrates the bank’s ability to be resilient and delight stakeholders during challenging times. Focus on innovation, agility and the ability to offer our customers value as a Team, has been the key driver of this outcome”.

All the subsidiary and associate companies within the group performed exceptionally well with the Insurance subsidiary HNB Assurance leading the pack with after tax profits of Rs 123 Mn showing a 35% growth over 2006. It was also pleasing to see the Group’s property development subsidiary Sithma Development, showing profits for the first time since its formation some 5 years ago.

Group Turnover increased by 38% to record Rs 31.9 Bn crossing an important Rs 30 Bn milestone. Growth in Net interest Income of 27% and Fee & Commission income of 23% contributed towards a healthy growth in Net Income of over 20%. Foreign Exchange Income contributed Rs 1,115 Mn recording a healthy increase of 44% over 2006.

The Bank’s after tax profit too recorded a 36% increase to Rs 3,022 Mn despite a charge of Rs 1,312 Mn for corporate taxes. Improved performance in the core banking activities, sound management of overheads and effective management of non-performing loans were the key drivers for this outstanding performance, while the bank alone recorded a pre tax profit of Rs 4,335 Mn which is a 44% growth over the previous year. The continued focus on cost management has led to operating expenses (including provision for bad debts, and bad debts written off) increasing by 19.2%% during the year which is considered satisfactory against an environment where domestic inflation point to point was 18.8%. HNB’s Cost Income ratio (including Financial VAT) stood at an improved figure of 64.3% in 2007 compared to 66.1% in 2006.

Loans and advances grew by more than Rs 27 Bn to Rs 161 Bn. Approx 77% of this exposure was to customers in the western province. Our efforts in increasing the quality of the bank’s advances portfolio has resulted in Gross Non Performing Advances reaching just under a commendable 6% this year which is a commendable 16% reduction from 2006. Focus on portfolio quality was evident with Net Non Performing Advances Ratio reducing to 1.41% (from 1.92% in 2006) while the provision cover improved to 76%. Deposit base grew by 19% to Rs 175.6 Bn. The expected shift from low cost Savings and Demand deposits to high cost Time deposits was well evidenced with a growth of 33% experienced in Time deposits. Selective acquisition of assets ensured that the Total Assets of the Bank increased by Rs 36.8 Bn to reach Rs 232.9 Bn. HNB’s Return on Average assets was 1.4%, which was a 100% improvement over a 3 year period since 2004.

The bank declared a first and final dividend of Rs 3.50 per ordinary share on a share base, which was double that of 2006 (following a 1:1 Bonus issue). This will result in a total dividend payout of Rs 824.3 Mn, which reflects a 40% growth over 2006. The payout policy has balanced the needs of investors against its internal needs to sustain its growth momentum by judicial retention of profits for future expansion.

The bank’s Capital Adequacy showed a healthy position. Tier 1 ratio stood at 10.32% and Total Capital adequacy ratio (Tier 1+2) stands at 12.08% well above the minimum regulatory requirement of 5% and 10% respectively. Shareholders’ Funds grew by a healthy 43% to reach Rs 18.4 Bn. The market capitalization of the bank stood at Rs 23.2 Bn as at 31st December 2007 which was a 57% increase and has pushed the stock up in the CSE rankings to the 6th highest valued company (from 10th position in 2006). The bank’s voting shares were actively traded during the year and saw HNB move up from 78th position (in 2006) to 18th position in 2007 in terms of trading volumes in the CSE.

Looking forward towards 2008, Theagarajah said that the bank’s focus would be three fold. “Firstly, to identify mobility patterns and increase our share of inward remittances and business/personal finance needs of these customers with user friendly, cost effective and value for money offerings. Secondly, to work closely with our top tier corporate clientele and add value as they diversify into overseas markets which in turn will diversify our own income and asset portfolios. Thirdly, to reinforce HNB’s long term thrust: We believe in Sri Lanka-as Sri Lanka’s premier private sector commercial bank, we will continue stimulating economic growth and prosperity at the village and town level which will retain wealth locally and stem the flow of urban migration”.

HNB’s voting share price ended at Rs 122.50 while non-voting share price ended at Rs 53.25 at the year ended 31st December 2007.