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. With almost all major economies significantly impacted, with resultant lockdowns leading to severe disruption in international trade and travel and Sri Lanka appearing to be quite successful in managing the situation at the moment, the forward challenges though to our nation seem quite significant with the economy expected to contract. Whilst the efforts and sacrifices of the first responders providing the front line defense against the deadly virus are hugely appreciated and the government’s effort to drive up economic activity by way of further monetary policy relaxation and relief packages to all affected businesses and individuals is of immense value to us all, the fear of the unknown remains and can exacerbate these forward economic perceptions and impacts”.
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). Relatively lower trade and economic activity even prior to the COVID 19 pandemic resulted in fee income being marginally lower. Nevertheless, revenue from digital channels continued to be encouraging.
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. Similarly, given the implications of COVID-19, the Bank has incorporated initial adjustments based on the limited information available in line with the guidelines issued by CA Sri Lanka and has made an impairment provision of Rs 4.7 Bn for the first quarter of 2020.
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. Income taxes were also much lower as NBT & DRL payments did not qualify for relief in income tax charge assessment for Q1 2019 and resulted in a PAT of Rs 2.6 Bn for the period compared to Rs 2 Bn in Q1 2019.
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. The trust placed by customers in the Bank during these uncertain times speaks volumes about HNB’s brand as one of the strongest and trusted banks in the Country. 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 of Sri Lanka. Health and safety of our staff, customers and all our stakeholders is our utmost priority and we continue to provide maximum safeguard measures as prescribed by the authorities. Our investments to ensure ‘future readiness ’paid rich dividends with our range of digital products including, SOLO-the payment app, MoMo – the mobile POS, internet payment gateway and Appigo being extremely effective in facilitating digital payments within the social distancing requirements. We have proactively engaged our customers to provide the necessary support in this critical time of need and we stay deeply committed to partner the resurgence of our nation as we have continued to do in the past.”
He added that, “the outbreak has led to the emergence of a ‘New Norm ’of operating. While we would re-assess our priorities accordingly, our focus would continue to be on delivering sustainable value to all our stakeholders.”
HNB is the first local Bank in Sri Lanka to receive an international rating on par with the sovereign from Moody’s Investor Services and has a national long term rating of AA- (lka) from Fitch Ratings. The Bank is also ranked amongst the ‘Top 1000 World banks ’as published by the prestigious Banker Magazine UK, a recognition bestowed upon HNB since 2017. HNB was recognized as Sri Lanka’s Best Bank by Euromoney Magazine in 2019 while ‘Business Today ’ranked HNB as the Number One Corporate in its prestigious and most recent Top 30 rankings.