HNB records Group PBT of Rs. 38.7 b for nine months of FY24

• Customer deposits cross Rs. 1.6 t
• Contribution to Govt. revenue by way of taxes exceeds Rs. 25 b
• Continues to maintain strong capital and liquidity levels
• Asset quality further strengthens; Net Stage 3 Ratio at 3.32%; Provision Coverage Ratio at 60%

Chairman Nihal Jayawardene

Acting CEO Damith Pallewatte

HNB Group has recorded a Profit Before Tax (PBT) of Rs. 38.7 billion, growing by 26% Year-on-Year (YoY), while the bank’s Profit After Tax (PAT) increased by 34% YoY to Rs. 22.2 billion for the nine months ended September 2024.

Chairman Nihal Jayawardene said: “Having experienced five years of extreme volatility and unprecedented challenges, Sri Lanka has witnessed macroeconomic stability during the year. We believe that the completion of the external debt restructuring as announced, as well as progression in the reform agenda, will boost investor confidence, auguring well for the country and the banking sector.”

Acting CEO Damith Pallewatte said: “Sri Lanka’s key macro variables continued to move in the right trajectory during the first nine months of the year. However, at bank level, these variables resulted in mixed financial outcomes. The overall improvement in the operating environment created a conducive environment for businesses and individuals leading to better credit growth and debt serviceability by the borrowers. However, a steep drop in market rates impacted both yields from the loans and advances and investment portfolio, negatively exerting pressure on interest margins. While the strengthening of the LKR against the USD resulted in improved economic activity on the imports front, this also resulted in the bank having to recognise an exchange loss on the revaluation of foreign exchange reserves. Nonetheless, in this backdrop, the bank’s core focus remained on sustainable growth through responsible lending, mobilisation of low-cost deposits, growing non-interest income, and improving asset quality.”

A decline in AWPLR by nearly 50% compared to last year and remaining at an average level of 10% for the first nine months directly reflected in the loan yields, as the loan book repriced at lower rates leading to a considerable 25% decline in Gross Interest Income for the period. The Interest Expense also recorded a 29% drop in line, supported by the strong growth in CASA deposits. The resultant NII for the period was recorded at Rs. 68.5 billion, reflecting an 18% YoY contraction.

The bank’s efforts to minimise the impact of interest rate volatility resulted in a 10% YoY growth in Net Fee and Commission Income, despite trade income being relatively lower compared to the previous year with the normalising of the trade tariff to pre-crisis levels. The growth in fee income was largely driven by higher cards and digital transactions in line with efforts to drive a cashless economy. 

Support extended to customers to revive their businesses, concerted efforts on collection, and the overall improvement in economic activity enabled the bank to record superior asset quality compared to the industry. The Net Stage 3 Ratio improved to 3.32% while the Stage 3 Provision Coverage Ratio improved to 60.50% during the quarter, compared to 4.09% and 56.08% recorded in 1H 2024. 

The total impairment charge for the nine months amounted to Rs. 3.2 billion, compared to Rs. 32.4 billion for the same period in 2023. The impairment charge for the previous period included an amount of Rs. 25 billion on account of the bank’s investments in International Sovereign Bonds (ISBs). With the agreement on the external debt restructuring, in line with the industry practice, the bank maintained its provision cover of 52% on the investments in ISBs. This, together with the positive movement in stage-wise loans, led to a significant reduction in the impairment charge for the period.

As of 30 September 2024, the bank’s gross loans and advances, which saw a drop in 1Q, recorded a net growth of Rs. 91.1 billion since, reaching Rs. 1.1 trillion. The bank’s deposit base continued to grow significantly, reaching Rs. 1.62 trillion, driven by a remarkable increase of Rs. 79.9 billion in LKR CASA over the nine months of 2024. This has elevated the LKR CASA ratio to 35.8% from 31.8% in December 2023.

HNB’s Tier I and Total Capital Adequacy Ratios stood at 15.51% and 20.01% against the minimum statutory requirements of 9.5% and 13.5%, respectively. The Tier II ratio was further strengthened during the quarter by the successful issuance of Basel III compliant subordinated debentures, amounting to Rs. 12 billion. 

HNB continued to maintain a strong liquidity position with an all-currency Liquidity Coverage Ratio of 297.39%, against the minimum statutory requirement of 100%. 

Outlining his vision for the bank, Acting CEO Pallewatte stated: “Our goal is to continue building on our legacy of strength, stability, and innovation. By leveraging best-in-class customer service, emerging technologies, and an unparalleled suite of products and services, we aim to partner the progress of our people, while exploring new market opportunities for expansion.”