Hatton National Bank PLC has posted a pre-tax profit of Rs.1,193 million for the first quarter 2010 compared to Rs. 1,175 million in the corresponding period 2009 while Group pre-tax profit for the period improved to Rs.1,219 million from Rs.1,134 million amidst re-pricing of assets and liabilities taking effect, subsequent to the sharp reduction in interest rates in the final quarter 2009.
Commenting on the Bank's performance, HNB's Managing Director / Chief Executive officer Mr. Rajendra Theagarajah stated that the interest income dropped by 14.7% to Rs.7,546 million mainly due to fall in interest rates while advances also witnessed a marginal negative growth. Interest paid decreased by 27% to Rs.3,928 million as a result of lower deposit rates and shift in the deposit mix towards low cost deposits. In spite of the pressures on interest margin, the Bank was successful in recording a 4.6% growth in net interest income during the quarter due to the Bank's aggressive asset liability management.
Non interest income improved by 14% on account of increase in commission income, and capital gains on sale of 20% stake held in Lanka Ventures PLC, in spite of fall in foreign exchange income by 16.6% mainly due to static exchange rates. Non interest expenses increased by 13.1% primarily due to an increase of 23.1% in staff costs, as a result of the salary increments to all grades of staff while other operating expenses increased by only 7.2% due to effective cost management strategies.
The Bank's effective tax rate increased to 45.3% in first quarter 2010 compared to 35% for the corresponding period 2009 resulting in a post tax profit of Rs.652.8 million in the first quarter 2010 against the post tax profit of Rs.763.1 million in 2009 representing a negative growth of 14.5%.
With the demand for credit improving at a slower pace than anticipated, the gross loans contracted marginally by 1% to Rs. 174.6 billion. Nevertheless, with the economy projected to grow at 6% in the current year, the position is expected to reverse within the next few months. The Gross Non Performing Advances Ratio (NPA) as at the end of first quarter stood at 7.4% while the Net NPA ratio was at 4.1%. The Bank maintained a provision cover of 44.5% as at end of the quarter 2010.
Amidst intense competition within the low interest rate regime the Bank managed to record a marginal growth in the deposit base and effectively bring down the cost of funds as evident by the 4.5% shift from fixed deposits towards savings deposits.
The price of the voting share of HNB improved by 10.6% during the first quarter 2010, with the price at Rs.188.25/- end of the first quarter 2010 compared to Rs. 170.25/- at the end of December 2009 while the non voting share recorded a gain of 33.6% to Rs.140/- from Rs.104.75/- at the end of 2009.
The Group post tax profit declined to Rs.655.4 million from Rs. 715.5 million in first quarter 2009 in line with the Bank. However, other Group companies namely HNB Assurance PLC, Sithma Development (Pvt) Ltd and the Joint Venture Investment Bank Acuity Partners posted positive growth over first quarter 2009.
The Bank expects to be in the forefront of the economic revival of the country and the main focus going forward would be on the North and the East provinces where HNB has been operative even during the time of war. Furthermore, HNB targets to surpass 200 customer centres by the end of 2010 with 6 new customer centres in the North & the East during the year.