Hatton National Bank looks to securitise mortgage receivables

Hatton National Bank (HNB) plans to securitize mortgage receivables to raise asset yields after reporting that profits halved last year. Hatton National Bank (HNB) plans to securitize mortgage receivables to raise asset yields after reporting that profits halved last year. HNB’s return on assets at 0.7 percent is among the lowest compared to indigenous banks with its shares trading at a massive 50 percent discount to book value.

HNB’s new CEO Rajendra Theagarajah told LBR, securitisation of loan receivables is one option the bank is looking at to increase asset yields to benefit shareholders.

“We are looking at certain parts of our loan portfolio-such as the development banking, housing and other parts of the loan blocks – if we could release from our balance sheet, pool the securities and reduce the overall financing of these debts which will in the turn increase the yield for the shareholders,” Theagarajah said.

HNB balance sheet grew by 15 percent last year despite the flat top-line growth and plunged in the group’s bottomline.

This drove down assets yields further.

The HNB group profit halved last year to Rs. 755 million from Rs. 1.5 billion in 2003 despite not paying corporate tax.

The bank provided 1.5 billion-rupee provision, taking bad and doubtful debts provision cover, to over 50 percent of non-performing loans for the first time.

Analysts say the Central Bank’s haircut rules imposed last year have pushed provisioning up industry-wide.

HNB’s provisions for NPL’s were at 39 percent last year.

Its CEO says the bank’s core management team will be firmly focusing on improving returns to shareholders in the next few years instead of merely growing market share.

“ROI as at the end of 2004 point is about 70 basis points – a drop from last year’s point eight-five, way below the bank’s medium term goal of 1.5 which I believe the minimum that one should expect from a bank of our stature,” he said.

“We are very conscious that it is one of the major challenges facing the bank and the group, which is being addressed at all levels, certainly every decision the bank’s management is taking at this point of time and would continue to do so in the next foreseeable future, would have two factors in mind. The return on overall assets ad secondly the relative discount our share price is trading to our book value. Whatever our decisions we take would certainly take into account these two factors and bring the two imbalances back into its true potential,” Theagarajah said.

HNB shares, which stockbrokers say are relatively illiquid, closed trading at Rs. 51.75 on Thursday. Ordinary shares of the bank were not traded on Friday.

The bank also lost over Rs. 200 million when it decided to cut positions on its bullion trading business in the first quarter.

-LBR Newsdesk: LBOEmail@vanguardlanka.com