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HNB operating profit down by 13.5-pct, PAT up due to tax concessions

May 18, 2020 (LBO) – The operating profit of Sri Lanka's Hatton National Bank (HNB) before VAT and taxes declined by 13.5% to Rs 4.2 Bn compared to Rs 4.9 Bn in the corresponding period of 2019, interim accounts showed.

"The removal of Nations Building Tax (NBT) and Debt Repayment Levy (DRL) with effect from December 2019 and January 2020 respectively resulted in a lower total effective tax rate and contributed to Profit Before Tax (PBT) increasing by 2.4% YoY to Rs 3.3 Bn," the bank said in its interim accounts.

"Income taxes were also much lower as NBT & DRL payments did not qualify for relief in income tax charge assessment for Q1 2019 and resulted in a PAT of Rs 2.6 Bn for the period compared to Rs 2 Bn in Q1 2019."

The interest income of the Bank dropped by 7.2% YoY to Rs 27.2 Bn, due to the drop in AWPLR by nearly 300 bps over the past 12 months up to March 2020.

Interest expense also dropped similarly by 3.5% YoY to Rs 15.8 Bn. Accordingly, Net Interest Income for the period was at Rs 11.4 Bn which is 11.9% below the level attained in the corresponding quarter of 2019.

Net Fee and Commission Income of Rs 2.1 Bn compared to Rs 2.2 Bn in 2019, contributed 14% to the Bank’s Total Operating Income (TOI).

"Relatively lower trade and economic activity even prior to the COVID - 19 pandemic resulted in fee income being marginally lower. Nevertheless, revenue from digital channels continued to be encouraging," the bank said.

"The rupee depreciated significantly since mid-March triggered by COVID - 19 recording a depreciation of over 4% during the first quarter. This was reflected in the net other operating income of Rs 1.9 Bn against the Rs 1.1 Bn loss recorded in Q1 2019."

The non-performing advances ratio for the Bank remained flat at 5.9% compared to December 2019.

"In Q1 2019, the Bank made substantial impairment provisions of Rs 4.1 Bn with asset quality deteriorating industry wide," the bank said.

"Similarly, given the implications of COVID - 19, the Bank has incorporated initial adjustments based on the limited information available in line with the guidelines issued by CA Sri Lanka and has made an impairment provision of Rs 4.7 Bn for the first quarter of 2020."

The loan book which remained almost flat in 2019, grew by Rs 12.2 Bn during the quarter to Rs 754 Bn while deposit growth outpaced loans, rising by Rs 31 Bn within the quarter to Rs 841.1 Bn.

HNB continues to be among the best capitalized banks in Sri Lanka, with Tier I and Total Capital ratios at 13.85% and 17.25% respectively as against the present regulatory minimum requirements of 8.50% and 12.50% applicable as a domestic systemically important bank.

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