During the first half of 2012, pre-tax profit of the bank improved by 30% to Rs. 4.49 billion, compared to Rs. 3.44 billion during the corresponding period in 2011, while the post-tax profit improved by 33% to Rs. 3.07 billion.
The HNB Group recorded a pre-tax profit of Rs. 4.76 billion for the six months ended 30 June 2012, up by 28% from Rs. 3.71 billion during the first half of 2011 and a post-tax profit of Rs. 3.32 billion up by 31% from Rs. 2.54 billion during the corresponding period of 2011.
HNB Chairperson Dr. Ranee Jayamaha stated: “The focus on core banking operations has enabled the bank to post sustainable growth despite the challenging business environment.”
The interest income from loans and advances recorded a growth of 40% during the first six months of 2012 over an year earlier.
In line with the direction issued by the Central Bank to limit the growth in credit, the bank cautiously expanded its loan book through quality credit, with gross loans and advances increasing by 11%, recording a growth of Rs. 28.8 billion to reach Rs. 292.4 billion as at end of June 2012.
Interest expenses also increased by 52% to Rs. 11.6 billion due to the growth in deposits and re-pricing of liabilities at higher rates of interest, amidst heavy peer competition during the first half of 2012.
The deposit base of the bank grew by Rs. 26.1 billion or 9% to reach Rs. 314.1 billion as at end June 2012 and the base saw a shift towards high yielding time deposits due to the prevailing market conditions.
Nevertheless, as a result of prudent asset and liability management, the bank recorded a 26% growth in net interest income during the period.
The non interest income of the bank also increased to Rs. 2.8 billion recording a growth of 31% during the first half of 2012, driven by increase in forex income and other income.
Increase of 22% in other income was mainly on account of higher commission income while exchange income too recorded a 60% growth over the corresponding period of 2011.
Despite adding 31 new customer centres to the distribution network of the bank during the 12 months up to 30 June 2012, the bank was successful in managing its operating expenses during the period.
HNB said although losses on trading securities also increased by Rs. 113.3 million during the period under review due to unfavourable market conditions, the bank managed to curtail growth in its total operating expenses to 13%, thereby improving the cost to income ratio to 52.8% in comparison to 57.7% as at end of December 2011.
“The efforts on improving operational efficiency of the bank have resulted in recording a drop of five percentage points in the cost to income ratio during the first half of 2012. The bank is committed towards streamlining its systems and processes further and is confident of bringing the cost to income ratio below 50% in the medium term,” HNB Managing Director and CEO Rajendra Theagarajah said.
Provisions on bad and doubtful debts increased to Rs. 611.7 million during first half of 2012 against a provision reversal of Rs. 152.6 million during the corresponding period of 2011.
The provision reversal in 2011 was mainly due to the direction issued by the Central Bank to reduce general provisioning, while the increase in 2012 reflects provisioning on account of a large loan and prudent policies adopted by the bank with regard to capital provisioning with effect from Q2 2012.
The bank also recovered Rs. 250.1 million which have been categorised as bad and doubtful, due to its concerted recovery efforts. The gross NPA ratio and the net NPA ratio stood at 4.58% and 2.85% respectively as at end of June 2012.
The capital position of the bank remained strong with tier I ratio at 11.57% and total capital adequacy ratio at 14.49% as at 30 June 2012. Tier II funding of US$ 25 million raised from the German Development Finance
Institution DEG during the second quarter of 2012 further improved the total capital adequacy ratio of the bank.
At group level the performance of the insurance subsidiary HNB Assurance PLC as well as the property development subsidiary Sithma Development Ltd. contributed towards the growth.
HNB was also recognised as the ‘Best Retail Bank in Sri Lanka for the year 2011’ by the Asian Banker for the fifth consecutive year at the 11th Excellence in Retail Financial Services Awards held in March 2012.