HNB continued to post robust results in Q1 of 2012, driven by expansion in core banking operations amidst a challenging business environment with rising interest rates and rupee depreciation.
HNB’s pre-tax profits grew by 25% to Rs. 2.1 bn., while group pre-tax profit also increased by 25% to Rs. 2.29 bn.
Commenting on the performance, HNB PLC Chairperson said, “Despite the challenging business environment, with tight monetary policy and restrained credit growth, HNB performed commendably during the first quarter (Q1) of 2012”.
HNB PLC Managing Director/CEO Rajendra Theagarajah said, “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”.
Bank’s profit after tax improved by 27% to Rs. 1.4 bn., while group post tax profit also recorded a 28% growth to Rs. 1.5 bn. The performance of the insurance subsidiary HNB Assurance PLC, joint venture investment bank Acuity Partners (Pvt.) Ltd. as well as the property development subsidiary Sithma Development (Pvt.) Ltd contributed towards the growth.
Meanwhile liquidity pressure experienced by the Banking Industry continued in to 2012, however HNB successfully managed to raise over Rs. 21.5 bn. in tier I and tier II capital and long term senior debt since mid-2011 with funds totalling to US$ 75 mn. raised so far from foreign sources this year. With credit demand continuing to be high in Q1 2012, HNB cautiously expanded its loan portfolio recording an 8% growth during the first three months of the year to reach Rs. 284 bn. as at end Q1 2012.The loan book grew by Rs. 62 bn. during the 12 months up to end March 2012 leading to a 35% increase in interest income from loans and advances. The deposit base also saw a 7% increase during Q1 2012 while a shift towards fixed deposits was observed due to the rising trend in interest rates. The deposit base saw a Rs. 60 bn. increase during the 12month period from April 2011 to March 2012 with a 46% increase in interest expenses in Q1 2012 mainly due to deposits repricing at higher interest rates. Nevertheless, due to prudent asset and liability management, net interest income improved by 16% during the review period.
Foreign exchange income recorded an impressive 71% growth driven by fluctuation in exchange rate while “Other income” too recorded a 52% increase 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% by end Q1 2012 from 57.7% in December 2011. 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 March 31, 2012.
During the review period 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 11thExcellence in Retail Financial Services Awards held in March 2012.
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