HNB Group profit tops Rs 4.5 bn

Skillful management of margins:

Hatton National Bank Group posted a pre tax profit o

f Rs 6.17 bn and post tax profit Rs 4.55 bn, an impressive improvement of 37.5 percent and 57.8 percent respectively, over 2008. Hatton National Bank PLC (HNB) Managing Director/ CEO Rajendra Theagarajah said the solid contribution from the core banking activities, significant reduction of the Non Performing Advances (NPA) and commendable returns from the subsidiaries are the key success factors.

Main contribution came from HNB (The Bank) which recorded Rs 5.92 bn and Rs 4.35 bn pre tax and post tax profit, reflecting increases of 23.7 percent and 35.2 percent respectively, over the results of 2008.

Despite the challenging macro economic climate and the contraction in loans and advances during the year, the skillful management of margins enabled Net Interest Income (NII) of the Bank to grow by 15 percent to Rs 14.6 bn in 2009.

However, Foreign Exchange income witnessed a decline of 21.2 percent while fee and commission income recorded a decrease of 2.3 percent over 2008.

The cumulative effects of a drop in trade finance business; near static exchange rates and a decline in the forward exchange bookings contributed to the overall drop in fee and commission income and exchange profit.

Investment income re-adjusted during the year, from an exceptional growth and capital gains witnessed as a result of restructuring of subsidiaries in 2008.

Thus in 2009, the investment income declined by as much as 59.6 percent to Rs 217.4 mn. Nevertheless, due to the increase in other income by 101.1 percent to Rs 1.3 bn primarily as a result of provision reversals on account of Kabool Lanka (Pvt) Ltd. and Cross Staff Aquila USD Plus (Aquila) Funds, the total non interest income improved marginally by 0.7 percent in 2009.

The overall operating expenses for the year increased by a mere 6.4 percent to stand at Rs 13.4 bn, with staff expenses and salaries in particular contributing to the rise.

The recently negotiated collective agreement with the Bank Unions came into force during the year, increasing staff expenses by as much as 14.9 percent due to an upward revision of salaries.

However, the bank continued its efforts towards cost management and productivity improvements.

The head count reduced by 2.1 percent despite the expansion of the Bank’s operations which saw the establishment of nine new customer centres during the year.

The Bank’s cost to income ratio (excluding financial VAT) stood at 54.4 percent in 2009 compared to 54.3 percent in 2008.

Despite the marginal deterioration, the Bank is well positioned to meet its medium-term goal of containing the cost to income ratio below 50 percent.

Despite challenges the Bank managed to reduce its NPL ratio from 6.73 percent in 2008 to 6.15 percent by end 2009 as a result of prudent lending policies, aggressive recovery action and recovery made on account of Kabool Lanka (Pvt) Ltd.