HNB sails skillfully through turbulent 1H

HNB Group recorded a Profit Before Tax of Rs 6.7 Bn and a Profit After Tax of Rs 6.1 Bn during the first six months of 2022 amid extremely challenging operating environment. Commenting on the first half, Aruni Goonetilleke Chairperson of HNB PLC stated, “The extraordinary market conditions have created a set of new challenges for the entire banking sector. As the external factors continue to be volatile it is important to take necessary steps to minimize the negative impact due to the risk factors. At the same time, we must be open to opportunities that arise even during a crisis situation. Our performance during the first half reflects this meticulous and prudent approach as we stay focused on delivering long term value to our stakeholders”.

The gross income of the Bank grew by 71% YoY to Rs 97.1 Bn driven by a 53% growth in interest income, 61% growth in fee income and 349% growth in exchange income. The exceptional growth in net interest income from Rs 23.2 Bn to Rs 40.2 Bn was primarily due to the increase in average AWPLR by approximately 16 percentage points in line with the tight monetary policy adopted by the Central Bank of Sri Lanka.

The Fee income also recorded a steady growth increasing to Rs 7.3 Bn for the 6 months mainly on account of improved trade and card income. The total exchange income improved to Rs 15.3 Bn from Rs 3.4 Bn during the first half of 2021, as the rupee depreciated by over 80% during the period. Accordingly, the total operating income improved to Rs 63.3 Bn recording a 100% YoY growth.

The Bank made a total impairment of Rs 40.1 Bn for the first six months of the year compared to a charge of Rs 6.3 Bn in the previous year. The total impairment charge for the period included an impairment of Rs 27.3 Bn on account of the foreign currency denominated government securities held by the Bank pursuant to the suspension of external debt repayment by the Government of Sri Lanka and the sovereign downgrade. Considering the volatilities and the economic factors, the Bank recognized an impairment of Rs 22.7 Bn on account of loans and advances for 1H 2022 compared to the provision of Rs 6.2 Bn made in the corresponding period of 2021. An amount totaling to Rs 10.8Bn relating to the exchange impact on impairment of foreign currency loans and investments was set off against the exchange income for the period. The net stage III ratio of the Bank improved to 2.46% from 2.55% as at end of December 2021 while the provision coverage on stage III loans improved from 56% to 63% maintaining the position as one of the best in terms of asset quality among peers.

The operating expenses for the 1H of 2022, increased by 26% to Rs 14.9 Bn mainly due to devaluation of the currency, higher energy costs and increase in staff expenses subsequent to salary revisions effected at the beginning of the year. Nevertheless, the cost to income ratio of the Bank improved by approximately 14 percentage points to 23.5% as total operating income recorded a higher growth during the period.