HNB Group records Rs 3.4 billion PAT in 1H, 2013

The post tax profit of the HNB Bank improved by 12% to Rs 3.14 billion, during the first half of 2013, compared to Rs 2.8 billion during the corresponding period in 2012, while Group post-tax profit improved by 15% to Rs 3.4 billion.

Chairperson of HNB PLC, Dr. Ranee Jayamaha said, "The market challenges that prevailed in the first quarter continued into the second quarter as well. Nevertheless we recorded strong performance for the first six months of this year. We believe that the market conditions would improve in the second half".

The interest income grew 31% during the first six months of 2013, compared to 2012 due to 13% year-on-year expansion in its loan book and relatively higher rates of interest. Interest expenses too increased by 40% from Rs 11,211million in 1H, 2012 to Rs15,700 million for 1H 2013 largely facilitated by the increased deposit base of Rs 32 billion which is a growth of 10% year-on-year and the higher rate of interest compared to the previous period and the shift towards high yielding deposits.

HNB's net interest income grew 22% for 1H, 2013 compared to the corresponding period of 2012. Higher amount of swaps during the year also has contributed towards this growth in NII. Net fee and commission income of the Bank increased to Rs 2,002 million, a growth of 9% during the first half of 2013.

The growth in fee income was achieved despite a drop in trade business in the country with negative growth in exports and imports compared to the previous year.

Credit card fees and remittances were seen as the main drivers of fee income during the period under consideration.

Net gains and losses from trading mainly represent the revaluation of off balance sheet swap position which was taken to hedge the on balance sheet open positions created by some of the foreign borrowings over the past 15 months.

The appreciation of the rupee resulted in these swaps showing a loss in the first quarter while it reflected a gain during the second quarter due to the local currency depreciating.

The corresponding impact on the balance sheet is reflected in other operating income.

At the Bank level, other operating income reflects the revaluation of the on-balance sheet position and exchange gains from customer transactions.

At the Group level other operating income also consist of insurance premium by HNB Assurance, fees earned by Acuity Partners Ltd, which represents the investment banking cluster and the higher rental income earned by Sithma Development Ltd.

Higher dividends received from the Bank's equity investments during the first six months of this year resulted in a 42% growth from financial investments compared to the previous year.

Overall the Bank managed a 13% growth in its total operating income while growth in operating income for the Group was marginally higher at 14%.

During the first half of 2013 HNBs individual impairment provision improved marginally while the Collective Impairment provision on individually insignificant loans increased by 186% for H1, 2013.

While the increase in collective provisions are reflective of higher NPA of 4.55% (though it has improved from 4.8% in 1Q 2013), the conservative provisioning policy adopted by HNB of providing 100% for all impaired loans which are considered to be individually insignificant (irrespective of collateral value) has resulted in a provision figure which is significantly larger than what is required by the regulatory guidelines.

The overall provisioning cover of the Bank has improved to 69.1% from 67.6% in December 2012. (Provision cover on impaired loans improved to 77.6% from 74% in December 2012).

Operating expenses for 1H, 2013 decreased by 11% to Rs 6,237 million largely due to the winding up of the Employee Share Benefit Trust (ESBT) scheme as per directions of the Colombo Stock Exchange (CSE) Rule 5.6.10.

As required by SLFRS, the Bank maintained a provision of Rs 1.5 billion for the ESBT which was reversed during the second quarter of this year with the decision to wind it up.