Sound Profile

Oct 25, 2010 (LBO) - Fitch Ratings Lanka has confirmed the national long-term rating of Sri Lanka's Hatton National Bank (HNB) at 'AA-(lka)' and its subordinated debentures at 'A+(lka)' with a stable outlook, a statement said. "The ratings reflect HNB's sound financial profile supported by good profitability, asset quality and capitalisation among local commercial banks," it said.

"A sustained deterioration in HNB's credit profile relative to 'AA(lka)'-rated peers would add downward pressure to its rating."

HNB's net interest margin was 6.0 percent in the 2009 financial year - well above the local licensed commercial banks (LCB) sector average of 5.3 percent, the rating agency said.

HNB's pre-tax return on assets (ROA) increased to 3.0 percent in 2009 from 2.5 percent the year before due to non-recurring items (NRI), which pertain to recoveries from a large NPL (non-performing loan), an investment, and value-added tax.

After adjusting for these NRI, HNB's adjusted pre-tax ROA was 2.8 percent in FY09 - still comparatively good in the local context, Fitch said.

At end-June 2010 (H110), about 40 percent of HNB's loan book was corporate loans, with retail and consumer loans and small and medium enterprise