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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » HNB's sacked CEO manupulated Accounts to increase profits???

HNB's sacked CEO manupulated Accounts to increase profits???

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Deshadaya


Stock Analytic
Stock Analytic
What is happening to the HNB where cronies have been appointed?

Letters
View(s):

HNB is the oldest private sector bank in Sri Lanka, once the most profitable bank under Rienzi Wijetileke, a leader who revolutionised the banking sector.

Last year profits of the bank were down by over 15 per cent and then again in the latest 1st quarter, profits are down 12 percent.
A former top official was believed to be responsible for ensuring the bank paid the lowest tax rate in the country. This official was very good at creative accounting. Is the HNB now paying for those sins?

The main issue the HNB has is that the board has become a parking place for retired central bankers, rich kids of shareholders who do not know what banking, and friends of the government.

Banks are run on depositors and lenders money. Shareholders only bring 10 per cent of the capital employed. The banking sector should be allowed to run professionally without political interference. The EPF and ETF have already been ransacked. Do we want the private sector banks to go the same way? What is going on? We need to clean up if we want to attract good investors to our country.

Palitha
(Via email)

dhanurrox


Vice President - Equity Analytics
Vice President - Equity Analytics
Anyway foreigners keep buying.

WildBear


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
One of the most undervalued Banking counter with good dividend yield,

Deshadaya


Stock Analytic
Stock Analytic
The Governor,  
Central Bank of Sri Lanka,  
Colombo-01.  
Excessive Performance Based Bonuses paid to staff at Commercial Banks  

Commercial Banks in Sri Lanka have been clearly manipulating their FINANCIAL PERFORMANCE by adjusting their financials and adopting professional ‘Window Dressing” techniques. This malpractice  is carried out mainly to mislead the “Board of Directors” and “Share holders” with the view to  “Declare excessive performance based bonuses” based on a “Predetermined flexible criteria “to their selected senior staff members. This attempt is aclear evidence of diverting the earnings which is due to "Shareholders".  

WE SALUTE THE INITIATIVES TAKEN BY YOU AS THE GOVERNOR OF THE CENTRAL BANK OF SRI LANKA UNDER THE LEADERSHIP OF THE PRESIDENT AS THE MINISTER OF FINANCE  TO CONTROL THE EXCESSIVE BONUSES PAID TO SENIOR OFFERS OF COMMERCIAL BANKS BY PLACING A “CAP”ON THE BONUSES PAID.  
Clear evidence of this mal practice of Hatton National Bank is given below.  

Hatton National Bank has recorded a Profit after tax of Rs 4,464 Mn which in an increase of 2.6% over the previous year of Rs 4,352 Mn.  
Notably the Return of Average Assets has reduced from 1.6% to 1.5% and Return on Average Shareholder’s Fund has reduced from 19.6% to 17.5%.The cost income ratio too has increased from 54.3% to 56.5%.Despite decline in profitably the Managing Director has paid hefty bonuses to selected staff members.  
It is interesting note how he has manipulated the Financial Performance of the Bank which now belongs to the Government.  


Mr.R.Theagarajah assumed duties as Managing Director in December 2004 .With the view of suppressing the performance level in yeas  2005 ,he convinced the Board of Directors to make excessive loan loss provisions of  Rs 2.4 Bn  o/a Kabool lanka Limited.  

He refers to this as a prudent accounting treatment which was effected to show on a subsequent year that due to his leadership the Bank was able to make excessive profits and to convince the Board of Directors that he and a selected set of senior staff members to claim excessive bonuses.

By effecting this adjustment he set up a firm footing to mislead the Board of Directors in the next year to reflect an improvement in profit and to portray that the increased profits were due to his strategies and leadership.  

*Year 2006 (source-annual report 2006.)  


During the year 2006 , HNB reported a Profit after tax of Rs 2,220 Mn which is an increase of 34% over the previous year.  


However, a careful scrutiny of  the financial statement reveals  the  reversal of  “Loan loss provision  of Rs 931 Mn“  which was made was made in the previous year.


If this reversal which is not from “Core Business “which cannot be sustained is ignored, in actual terms the profits have declined in year 2006.

In this year too HNB paid hefty bonuses to selected staff members.  


*Year 2007 (Source - annual report 2007.)  


During the year 2007, HNB reported a Profit after tax of Rs  3,022 Mn which is an increase of 36% over the previous year of Rs 2,220 Mn.  


This once again is not from “Core Business” but from additional income of Rs 500 Mn  resulting from the CBSL reducing the "statutory reserve ratio " and the excessive funds made available being invested in Government Securities and placement income and provision reversal of Rs 126 Mn

If these items are removed the performance of HNB would have declined in this year as well.

This year too HNB opted to pay hefty bonuses to selected staff members.  


*Year 2008 (source -annual report 2008.)  


During the year 2008,HNB reported a Profit after tax of Rs 3,219 Mn which is an increase of 6.5% over the previous year of Rs 3,022 Mn.  


This increase is also not from “Core Business” which could be sustained ,but from Dividend income of Rs 410 Mn from  one of its subsidiaries HNB Securities Limited and from Income on sale of shares of Rs 154 Mn which relates to transfer of shareholdings in subsidiary companies to M/s Acuity Partners(pvt.,)Lts wich is marely a book entry.In addition  additional interest income on Investment in government bond of Rs 650 Mn  was also recorded.

If these items are excluded in this year too HNB performance would have declined.

The payment of exceptional bonuses to selected staff members continued in this year as well.  


*Year 2009 (source - annual report.)  


During the year 2009,HNB reported a profit after tax of Rs 4,352 Mn which is an increase of 35% over the previous year of Rs 3,219 Mn.  


Once again this income is not from”Core Business” and cannot be sustained . This is mainly due to increase of Other income  by Rs 650 MN from sale of Associate and subsidiary companies to a joint venture  named M/s Acuity Partners and also due to reversal of Bad debt provision of 440 Mn recorded  o/a Kabool  Lanka. Further, The Bad debt provision reduced by Rs 451 Mn  and Interest income on Government securities increased by  Rs 2,817 Mn.

Once again if these items are excluded the profitability of HNB would have reduced substantially.  

It is needless to state the continuation of excessive bonus payments to selected staff members.  

*YEAR 2010 (Source - annual report.  


Year 2010 Hatton National Bank has recorded a Profit after tax of Rs 4,464 Mn which in an increase of 2.6% over the previous year of Rs 4,352 Mn.  


Notably the Return of Average Assets has reduced from 1.6% to 1.5% and Return on Average Shareholder’s Fund has reduced from 19.6% to 17.5%.The cost income ratio too has increased from 54.3% to 56.5%.Despite decline in profitably the Managing Director has paid hefty bonuses to selected staff members.  


Once again this increase is due to reduction of provision of loan losses of Rs 227 Mn and not from “Core Business”. If this item is excluded the profitability of HNB would have reflected a decline.  


This did not have any impact on the payment of hefty Bonuses paid to selected staff members.  
Our Humble Request  


We sincerely hope that you will take necessary steps to control the payment of excessive bonuses to selected “Key management Staff” of Commercial Banks.  

Yours faithfully,  
Dalreene  Amarasinghe (Mrs)  
69 F, SugastanGardens,  
Colombo-07.

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