"HNB's loan book is shifting towards larger, mid-sized corporates from its previous focus on retail and SME sectors, which, while adding to diversification, results in lower returns," Fitch said.
Exposure to large- and medium-sized corporates increased to 35 percent of the loan book at end-2013 from 29 percent at end-2012.
It was the main reason the bank's loan book to expand 17 in 2013, outpacing a 9 percent loan growth in the wider banking sector.
In 2012, HNB's loan growth was 18 percent compared with 21 percent in the banking sector. HNB was reducing its pawning or gold-backed loan exposure now that quality has started to deteriorate.
HNB's regulatory non-performing-loans (NPL) ratio improved slightly to 3.64 percent at end-2013 from 3.66 percent a year earlier was driven by growth in the loan book, while absolute gross NPLs rose 18 percent.
Capitalisation remained comparable with domestic peers', although it declined during 2013 due to higher asset growth compared to its peers. HNB's Fitch core capital ratio reduced to to 16.8 percent at end-2013 from 18.4 percent at end-2012, Fitch said.