Interest rates volatile, double digit inflation -HNB

The period from March to May this year saw a volatility in local interest rates coupled with near double digit inflation affecting credit quality, among other problems, a top bank said.

Hatton National Bank (HNB) Managing Director Rajendra Theagarajah, in a review of the bank’s performance for the six months to June 2007, said this also posed a challenge to defending interest margins.

The bank however continued its ‘robust’ performance by recording a 32% rise in pre-tax profits to Rs 1,498 million in the six months to June 2007.

In a statement, Theagarajah said, “Our team focus on balancing business growth with profitability, improving productivity, managing costs, and enhanced asset quality contributed towards this performance”.

The period under review saw the entire operating expense bill of Rs 4.23 billion being comfortably met by net interest income from core banking activity. Net income including foreign exchange, commission income and investment income grew by 27% leading to a surge in foreign exchange trading which grew by 48%.

Provisioning for Bad and Doubtful Advances has shown a sharp increase of 92% to Rs 595 million. Of this, Rs 228 million (up by 834% over 2006) related to General Provision mainly on account of the new regulatory directions issued by the Central Bank of Sri Lanka. Theagarajah expressed satisfaction on the efforts taken by HNB to improve its Portfolio Quality during the past three years and noted that the results of such quality improvements have started contributing towards the bottom line from 2006/7.

Post Tax profits were Rs 965 million, up 25% from the earlier period. Taxation in the form of financial services VAT rose by 29% to Rs 613 million due to a combination of increase in taxable profits and increase in staff emoluments which are added back (excluding retirement benefits). Income Tax too increased by 46% to Rs 533 million.

Theagarajah said the results demonstrate HNB’s clear focus on achieving its three-year financial goals which formed part of the bank’s strategic redirection efforts rolled out in late 2004.