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| Sunday, 24 March 2002 |
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Business |  |
| News Business Features Editorial
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HNB
embarks on strategic redirection plan
Hatton National Bank (HNB), said to be the largest private commercial bank in Sri Lanka, has recorded a 62 per cent drop in net profits for 2001. The bank will work on a strategic redirection plan to face the difficult situation. The bank has posted a pre-tax profit of Rs 301 million compared to Rs 949 million in 1999. Post-tax profit was Rs 303 million compared to Rs 800 million recorded the previous year. The sharp drop in profitability is directly attributed to the adverse economic conditions that prevailed in the country which saw much of the bank's activity including that of its subsidiaries and associates remaining subdued, said Managing Director of the Bank Rienzie Wijetilleke. He said: "After more than 30 years of existence, the bank underwent the worst crisis, virtually diminishing our dominance among the private sector banks." "Therefore, we had to rely on our own strengths and self-confidence to face the difficult situation. Although the situation was mainly due to external developments, we used the opportunity to analyse our own internal weaknesses and shortcomings." The board of directors and the corporate management together worked out a strategic redirection plan for the bank where several far-reaching decisions were taken to get over the problems. A special committee of senior officers discussed several relevant issues and prepared a strategic plan after identifying the critical issues and formulated workable arrangements to address the weak areas. The bank's main source of income i.e. interest income from customer advances showed an 18 per cent growth during the year. However, due to the increase in interest expenses, net interest income recorded a 20 per cent decline over the previous year. Foreign exchange income showed a growth of 42 per cent while other income inclusive of Foreign Currency Banking Unit (FCBU) profit and income from investments grew by 28 per cent. Despite the adverse economic environment, the bank's FCBU recorded a profit of US$ 4.8 million due to the 20 per cent growth in interest income and a sizeable income derived from the bank's investments in the US and UK Treasuries. Operational expenses have increased by 16 per cent due to a rise in personal and premises costs. The rise in operational expenses and the drop in interest income increased the bank's cost to income ratio (CIR) to 80 per cent. The strategic redirection exercise is expected to streamline the expenditure structure of the bank with a view to reducing the CIR. The bank is confident that these proposals will bring more favourable results in the current year, said Wijetilleke. The bank has formulated comprehensive plans to promote long-term deposits and attract more demand deposits to increase the deposit base. Deposits increased by 20 per cent. Mr Wijetilleke described it as a notable achievement considering the sharp fall in the interest rates from the second half of the year coupled with a rise in inflation. The advance portfolio of the bank has also recorded a growth of four per cent. The adverse economic conditions discouraged borrowers from investing in new ventures or expansion programmes while the corporate sector preferred to obtain their requirements from capital markets or through short-term money market instruments as against direct borrowings from commercial banks. Provisioning for bad debt has increased to Rs 692 million from Rs 297 million in the year 2000. The capital adequacy ratio stood at 9.6 per cent at the end of 2001. He said that although the bank had a bad year in terms of profits, shareholders and customers can be proud because HNB is in the process of becoming the owner of a state-of-the-art head office building which will have a value of over Rs 6 billion. "This investment will continue to bring enormous benefits to the bank in the future," said Wijetilleke. (SG) |
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