Banking Challenge

August 21, 2008 (LBO) – Hatton National Bank has staged a steady turnaround under the direction of its chief executive Rajendra Theagarajah. But with a weakening economy of high inflation and volatile interest rates, banks in general are under pressure. HNB is now looking at maintaining asset quality and increasing its exposure abroad as domestic loan growth slows.

In an interview with ETV’s Lanka Business Report show, Shamindra Kulamannage started by asking Rajendra if bad loans are creeping up.

A:

The environment of rising inflation on one side and high level of domestic interest rates is going to have a two sided effect on domestic consumers in terms of his disposable income and the amount he is able to use to service existing commitments.

So the first area that gets affected is the commitment on non-essentials. From that perspective; yes, consumer loan and consumer lending is to some extent at an increased level of risk. I think banks that have recognized and managed that situation are perhaps better equipped than some of the others.

LBR: If you look at HNB; which areas are causing you the most concern in terms of lending and rising non performing loans?

A:Two areas that we would focus today