Hatton National Bank PLC (HNB) demonstrated resilience and a staunch focus on sustainable business performance as it posted Rs 15.7 bn in Group Profit After Tax during 2022s.
The Bank’s interest income increased by 110.0% YoY to Rs 207.0 bn, primarily due to the increase in average AWPLR during the year by over 14 percentage points, consequent to the Central Bank’s restrictive monetary policy to arrest the inflationary pressure in the economy.
Interest expense also grew at a similar rate as the high interest rates resulted in an industry wide shift from CASA to term deposits. The resultant net interest income expanded by 107.6% YoY to Rs. 102.9 bn.
The Bank’s net fee and commission income grew by 57.7% YoY to Rs 15.2 bn driven by higher credit card volumes and trade income. Exchange income also improved significantly as the rupee depreciated by nearly 80% during the year.
However, the exchange impact of impairment provisions on foreign currency loans and investments amounting to Rs 12.3 bn was offset against the exchange gains. Consequently, the non-interest income increased to Rs 35 bn from Rs 16.2 bn by 117%.
Concerted efforts on supporting customers to revive their businesses and proactive recovery initiatives enabled the Bank to maintain its Stage III loan ratio at 3.4% as at end of 2022. Factoring in the economic stress the Bank proactively increased its credit related impairments by 168% to Rs 31.2 bn for the year compared to Rs 11.7 bn in 2021.
Pursuant to the announcement on suspending repayment of foreign currency debt by the Government, HNB on a prudent basis recognised an impairment charge of Rs 59 bn in 2022 on account of its investments in foreign currency denominated government securities. The total impairment charge for the year increased to Rs 90 bn by nearly five-fold.
HNB’s total operating expenses recorded an increase of 34.3% for the year. However, the operating expenses for 2021 included a reversal of Rs 2.2 bn on account of provisions made on pension and retirement benefits with the extension of retirement age to 60 years. Excluding this impact, the Bank’s operating expenses recorded an increase of 22%, in the backdrop of inflation peaking at over 70% in September 2022. Despite costs increasing, the cost to income ratio Improved to 22.0% compared to 34.4% recorded 2021, as total operating income improved at a much higher rate of 109.8% during the year.
The Bank’s standard tax rate increased from 24.0% to 30.0% during the year, and a newly implemented Social Security Contribution Levy of 2.5% came into effect, while VAT on financial services increased from 15.0% to 18.0% from January 1, 2022. Increase in deferred tax asset as a result of change in corporate tax rate to 30% and substantial impairment charges recognised along with the reversal of previous years’ tax provisions with the settlement of past tax assessments, the Bank recognised a tax credit of Rs 2 bn for the current year.
The Bank recorded a Profit After Tax of Rs 14.0 bn compared to Rs 17.3 bn recorded in 2021 while the Group recorded a PAT of Rs 15.7 bn compared to Rs 20 bn in 2021.
This resulted in a ROA of 0.9% and a ROE of 9% for the Bank. The Board of Directors of the Bank has proposed a final dividend of Rs 5.00 per share in the form of a scrip dividend for voting and non-voting shares.
The Bank’s asset base expanded by 24.5% to Rs 1.7 Tn during the year, with loans and advances growing by 14.3% to Rs 1.1 trillion. The growth was partly due to the devaluation of the rupee during the period and excluding this the growth was limited to 6% as the Bank adopted a cautious approach towards lending especially during the second half of the year.
Total deposits of the Bank grew by 31% to Rs 1.4 tn during the year, complementing Bank’s strategy of improving liquidity in the face of the crisis. Although this was partly supported by the rupee devaluation, Rupee deposits recorded a growth of Rs 191 bn. The Bank reported Tier I and Total Capital Adequacy Ratios of 11.06% and 14.0% against the minimum requirement of 9.5% and 13.5%.
The Central Bank permitted licensed commercial banks to drawdown up to 250 bps on the capital conservation buffer effectively lowering the requirement to 7% and 11%.
The Bank’s liquidity position further strengthened with liquid asset ratio and all currency liquidity coverage ratio at 34.0% and 519.5%, against the statutory requirements of 20% and 90%.