HNB reports blowout profits for December on mammoth provision reversals on ISBs

Hatton National Bank PLC (HNB) reported blowout profits for the October-December quarter, stemming mainly from the mammoth reversal of provisions made against the bank’s investments in International Sovereign Bonds (ISBs) and also the fast-improving lending business, amid lower interest rates.

In the December quarter, the bank reversed provisions worth Rs.91.6 billion, as the bond restructuring came to a close in December, with the banks opting for the bond exchange.

However, the bank could recognise only Rs.81.68 billion as provision reversals in the period, which may have partly been offset by the fresh provisions made for loans and advances. Simultaneously, the bank recognised a loss of Rs.49.5 billion, from the losses arising from the derecognising the old ISBs, which included the haircut and also what is referred to as the day-one loss on new bonds.

With these, the bank reported earnings of a mammoth Rs.35.92 a share or Rs.20.54 billion for the quarter, up 363 percent, from Rs.7.76 a share or Rs.4.44 billion in the year earlier period.

The bank on Friday declared a dividend of Rs.15.00 a share – all cash – for both its voting and non-voting shares, which worked out to a 20 percent pay-out ratio.

In core-banking operations, the bank reported a net interest income of Rs.31.24 billion for the quarter, up 27 percent from the year earlier period.

Commenting on this decline and in particular the decline in the interest income, the bank said it was due to the faster descent seen in both loan rates and the government securities yields but this situation was “moderated towards the latter part of the year, as the reduction in interest expenses outpaced the drop in income, owing to the lower rates and focus on driving the CASA deposits”.

It signalled that the bank is well on course to report a rise in net interest income in the ongoing quarter.

The bank reported a net interest margin of 4.86 percent, down from 5.66 percent at the start of the year. The bank gave loans worth a massive Rs.117.75 billion, at a growth of 11.3 percent for the year but the bulk, if not Rs.53.18 billion worth of loans, came in during the final three months.

The stage three loans ratio, which is the bank’s main credit quality matrix, narrowed to 1.88 percent, from 3.76 percent at the start of the year, reflecting much improved asset quality. Despite the total impairments turning to a reversal, due to the provisions coming out of bond investments, the bank said it provided Rs.11.5 billion on loans and advances for the full year, taking a still prudent approach.

Deposits grew by Rs.135.70 billion or 8.6 percent to Rs.1.72 trillion, of which 34.2 percent are from low-cost current and savings account deposits, up from 29.9 percent a year earlier.

The quarter saw the bank surpassing a total asset portfolio of Rs.2.0 trillion.

The bank remains well capitalised with both its Tier I and Tier II capital ratios standing at 19.59 percent and 23.96 percent, respectively, much higher than the 9.5 percent and 13.5 percent required at minimum levels.

Source: Daily Mirror