Hatton National Bank said this week that earnings in 2008 showed post tax profit of Rs 3.22 billion, up 6.5% over last year’s Rs 3.02 billion, and the highest on record.
The impact of the global economic downturn was felt on the foreign currency deposits. Investors were seen converting foreign currency deposits to rupee deposits as the interest rate differential widened between local and foreign currency deposits and the rupee continued to be stable during most part of the year, the Bank said.
HNB’s Managing Director Rajendra Theagarajah said in a statement that he was delighted with the results made against the backdrop of significant fluctuations in key macro economic variables such as interest rates, inflation and exchange rates which adversely affected the growth and profitability of the financial industry.
Total income grew by 23.9% to reach Rs 37.17 billion in 2008 despite the economic challenges. Interest income was the predominant contributor towards the Bank’s top line, which grew by 23.5% to Rs 32.43 billion.
Interest expense too witnessed a significant growth during 2008, as liabilities were listed at higher rates and the deposit mix tilting toward high cost funds. The resultant Net Interest Income (NII) grew by 14.6% to Rs.12.68 billion, this year.
Non interest income grew this year by 26.4% to Rs 4.73 billion. The Bank statement said the high inflationary trends continued to be an obstacle during the year. Having already infused some cost management best practices into working operations, the Bank said it was able to stem some of the negativities that abounded on the operational side with a growth of only 17.3% (increase in operating expenses excluding provisions and financial VAT is 13.6%).
Operating expenses was recorded at Rs 12.27 billion. Staff costs increased by just 11% during 2008 as a result of continuous improvements made in operational productivity while the headcount was kept almost flat in 2008 despite expanding the customer centre network.
The taxation regime imposed especially on the financial services sector, remains non-conducive to growth in the industry. “This year too we observed a sizeable slice being taken off our profits by the increase in Financial Services Value Added Taxation to Rs 1.77 billion. compared to last year’s Rs 1.24 billion, which the Bank can ill afford especially in times where the economy has shown signs of volatility and capital in short supply. Reduction of margins, increasing operating costs and high taxation will impose a challenge for the sector to maintain required capital requirements and will limit credit growth of the banking sector,” said Mr. Theagarajah.
“While it has been a challenging year, we have always stated that the real test is not to win when things are positive, but rather to win in an environment that constantly poses trials and challenges,” Mr Theagarajah added. |
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