HNB shifts its bond portfolio to a special account after a drop in treasury yields

Hatton National Bank has created a special account to transfer over four billion rupees worth of bonds, after its portfolio fell victim to a drop in treasury yields. Hatton National Bank has created a special account to transfer over four billion rupees worth of bonds, after its portfolio fell victim to a drop in treasury yields. Sri Lanka’s largest privately held bank, booked one of the largest bond trading capital gains in 2003.

HNB made Rs. 1,293.3 mn on bond trading activities, which was 82.3 percent of its net profit for December 31, 2003.

However, the bond market bonanza was cut short last November 2003 after the constitutional crisis, leaving banks like HNB, Seylan, NDB Bank and Nations Trust Bank see profits from its portfolio virtually wiped off.

HNB, which had a Rs. 8.0 bn portfolio, has since transferred about Rs. 4.8 bn to a special investment fund.

“It’s a short-term fund, which will run between one to three years. With call money rates now at about seven percent, we are not making a loss on it for the moment,” explains Gamini Karunaratne, DGM.

The move is not quite illegal, as accounting stands are rather laxed on the matter. But banks can opt for the route only once.

The bank which released it six months results on Wednesday, was quite upbeat on the way the new government ran its business.

“The moves to stabilise the exchange rate, and bring down treasury rates over the last few days are commendable,” says HNB’s Chairman/CEO Rienzie T Wijetillake addressing an investor forum.

However, its results were not that cheerful, with group net profits falling 38 percent to Rs. 488.5 mn for the six months ending June 30, 2004.

Group income during the period slipped 11 percent to Rs. 7.14 bn during the period under review.

HNB’s subsidiaries showed a mix bag of results. HNB Securities, its primary dealer arm, posted a modest Rs. 19.6 mn profit down from Rs. 200 mn in 2003.

Profits from HNB Assurance, the insurance unit, were Rs. 48 mn, while HNB Stockbrokers was Rs. 10.4 mn during the period under review.

The bank’s deposit based had a modest four percent growth of Rs. 105.34 bn, while lending grew six percent to Rs. 79.51 bn.

Though its capital adequacy is forecasted to end at 11 percent, banking analysts feel the bank may go for a rights issue to boost its capital, within the next six to twelve months.

The Central Bank has also tightened the provisioning requirements for non-performing loans by introducing a ‘hair-cut’ provision.

HNB officials said the ‘hair cut provision’ is being ‘looked at’, though provisioning for the period under review was around Rs. 647 mn.

The bank’s approach to the ‘hair cut’ route, is in contrast to its rival Commercial Bank, which said recently that it has made an ‘incremental provisioning of Rs. 350 mn over and above’ its current guidelines.

Commercial Bank also has a relatively low exposure to the bond market.

-LBO Newsdesk: LBOEmail@vanguardlanka.com