HATTON NATIONAL BANK PLC For the year ended 31st December 2022
FINANCIAL COMMENTARY FOR THE YEAR ENDED 31ST DECEMBER 2022
Total operating income more than doubled to Rs 138 Bn
Absorbs over Rs 90Bn in impairment
Stellar growth of over 30% in deposits
Stage 3 loan ratios of 3.4%; one of the best in the industry
Strong liquidity with LAR and LCR well above statutory requirement
Adjudged the Best Corporate Citizen in Sri Lanka 2022
Hatton National Bank PLC (HNB) demonstrated resilience and a staunch focus on sustainable business performance as it posted Rs 15.7 Bn in Group Profit After Tax during 2022, a year marked by extraordinary circumstances and challenges.
The Bank's interest income increased by 110.0% YoY to Rs 207.0 Bn, primarily due to the increase in average AWPLR during the year by over 14 percentage points, consequent to the Central Bank's restrictive monetary policy to arrest the inflationary pressure in the economy. Interest expense also grew at a similar rate as the high interest rates resulted in an industry wide shift from CASA to term deposits. The resultant net interest income expanded by 107.6% YoY to Rs 102.9 Bn.
The Bank's net fee and commission income grew by 57.7% YoY to Rs 15.2 Bn driven by higher credit card volumes and trade income. Exchange income also improved significantly as the rupee depreciated by nearly 80% during the year. However, the exchange impact of impairment provisions on foreign currency loans and investments amounting to Rs 12.3 Bn was offset against the exchange gains. Consequently, the non-interest income increased to Rs 35Bn from Rs 16.2Bn by 117%
Concerted efforts on supporting our customers to revive their businesses and proactive recovery initiatives enabled the Bank to maintain its Stage
- loan ratio at 3.4% as at end of 2022. Factoring in the economic stress the Bank proactively increased its credit related impairments by 168% to Rs 31.2Bn for the year compared to Rs 11.7Bn in 2021.
Pursuant to the announcement on suspending repayment of foreign currency debt by the government of Sri Lanka, HNB on a prudent basis recognized an impairment charge of Rs 59Bn in 2022 on account of its investments in foreign currency denominated government securities. Accordingly, the total impairment charge for the year increased to Rs 90Bn by nearly five folds.
HNB's total operating expenses recorded an increase of 34.3% for the year. However, the operating expenses for 2021 included a reversal of Rs 2.2Bn on account of provisions made on pension and retirement benefits with the extension of retirement age to 60 years. Excluding this impact, the Bank's operating expenses recorded an increase of 22%, in the backdrop of inflation peaking at over 70% in September 2022. Despite costs increasing, the cost to income ratio Improved to 22.0% compared to 34.4% recorded 2021, as total operating income improved at a much higher rate of 109.8% during the year.
Bank's standard tax rate increased from 24.0% to 30.0% during the year, and a newly implemented Social Security Contribution Levy of 2.5% came in to effect, while VAT on financial services increased from 15.0% to 18.0% w.e.f. 1st January 2022. Increase in deferred tax asset as a result of change in corporate tax rate to 30% and substantial impairment charges recognized along with the reversal of previous years' tax provisions with the settlement of past tax assessments, the Bank recognised a tax credit of Rs 2 Bn for the current year.
The Bank recorded a Profit After Tax of Rs 14.0 Bn compared to Rs 17.3 Bn recorded in 2021 while the Group recorded a PAT of Rs 15.7Bn compared to Rs 20Bn in 2021. This resulted in a ROA of 0.9% and a ROE of 9% for the Bank. The Board of Directors of the Bank has proposed a final dividend of Rs 5.00 per share in the form of a scrip dividend for both voting and non-voting shares.
The Bank's asset base expanded by 24.5% to Rs 1.7 Tn during the year, with loans and advances growing by 14.3% to Rs 1.1 Trillion. The growth was partly due to the devaluation of the rupee during the period and excluding this the growth was limited to 6% as the Bank adopted a cautious approach towards lending especially during the second half of the year. Total deposits of the Bank grew by 31% to Rs 1.4 Tn during the year, complementing Bank's strategy of improving liquidity in the face of the crisis. Although this was partly supported by the rupee devaluation, LKR deposits saw a significant growth of Rs 191Bn demonstrating the confidence placed by our customers.
The Bank reported Tier I and Total Capital Adequacy Ratios of 11.06% and 14.0% respectively against the minimum requirement of 9.5% and 13.5% respectively. The Central Bank permitted licensed commercial banks to drawdown up to 250 bps on the capital conservation buffer effectively lowering the requirement to 7% and 11% respectively. Furthermore, the Bank's liquidity position further strengthened with liquid asset ratio and all currency liquidity coverage ratio at 34.0% and 519.5%, against the statutory requirements of 20% and 90% respectively.
HNB was awarded as the "Best Corporate Citizen for 2022" by the Ceylon Chamber of Commerce for the leadership in sustainability, governance and excellence. Furthermore, HNB was ranked among the Top 1,000 Banks in the World for the sixth consecutive years by the acclaimed UK based 'The Banker Magazine' while being adjudged the 'Best Retail Bank in Sri Lanka' by the Asian Banker Magazine for the 12th time.
2
INCOME STATEMENT
BANK | BANK | GROUP | GROUP | |||||||||
For the year ended | For the quarter ended | For the year ended | For the quarter ended | |||||||||
31st December | 31st December | 31st December | 31st December | |||||||||
2022 | 2021 | % Increase / | 2022 | 2021 | % Increase/ | 2022 | 2021 | % Increase / | 2022 | 2021 | % Increase/ | |
(Audited) | (Audited) | (Decrease) | (Decrease) | (Audited) | (Audited) | (Decrease) | (Decrease) | |||||
Rs 000 | Rs 000 | Rs 000 | Rs 000 | Rs 000 | Rs 000 | Rs 000 | Rs 000 | |||||
Gross income | 242,412,491 | 115,047,325 | 111 | 78,777,519 | 30,444,876 | 159 | 270,509,409 | 135,710,455 | 99 | 86,640,669 | 35,930,721 | 141 |
Interest income | 207,019,354 | 98,600,557 | 110 | 72,077,388 | 26,065,178 | 177 | 220,581,307 | 107,407,723 | 105 | 76,279,548 | 28,128,247 | 171 |
Less : Interest expenses | 104,142,478 | 49,041,200 | 112 | 40,277,925 | 12,084,991 | 233 | 109,014,763 | 50,945,355 | 114 | 42,040,873 | 12,495,467 | 236 |
Net interest income | 102,876,876 | 49,559,357 | 108 | 31,799,463 | 13,980,187 | 127 | 111,566,544 | 56,462,368 | 98 | 34,238,675 | 15,632,780 | 119 |
Fee and commission income | 15,520,113 | 9,893,263 | 57 | 4,263,230 | 3,046,909 | 40 | 16,521,300 | 10,676,982 | 55 | 4,561,404 | 3,319,442 | 37 |
Less: Fee and commission expenses | 345,863 | 270,702 | 28 | 91,429 | 85,809 | 7 | 619,555 | 360,771 | 72 | 158,156 | 118,276 | 34 |
Net fee and commission income | 15,174,250 | 9,622,561 | 58 | 4,171,801 | 2,961,100 | 41 | 15,901,745 | 10,316,211 | 54 | 4,403,248 | 3,201,166 | 38 |
Net interest, fee and commission income | 118,051,126 | 59,181,918 | 99 | 35,971,264 | 16,941,287 | 112 | 127,468,289 | 66,778,579 | 91 | 38,641,923 | 18,833,946 | 105 |
Net gains / (losses) from trading | 4,898,719 | (522,039) | 1,038 | (36,058) | 886,863 | (104) | 4,825,568 | (383,772) | 1,357 | (70,404) | 946,088 | (107) |
Net gain from financial investments at fair value through | 22,619 | 195,927 | (88) | 12,720 | 12,720 | - | 23,099 | 196,167 | (88) | 9,864 | 10,280 | (4) |
other comprehensive income | ||||||||||||
Net gains arising on de-recognition of financial assets | - | - | - | - | - | - | - | 5,874 | (100) | - | (3,616) | (100) |
Net insurance premium income | - | - | - | - | - | - | 12,750,482 | 10,641,842 | 20 | 3,227,654 | 2,990,805 | 8 |
Net other operating income | 14,951,686 | 6,879,617 | 117 | 2,460,239 | 433,206 | 468 | 15,807,653 | 7,165,639 | 121 | 2,632,603 | 539,475 | 388 |
Total operating income | 137,924,150 | 65,735,423 | 110 | 38,408,165 | 18,274,076 | 110 | 160,875,091 | 84,404,329 | 91 | 44,441,640 | 23,316,978 | 91 |
Less: Impairment charge for loans and other losses | 90,461,305 | 18,778,047 | 382 | 30,185,979 | 7,584,687 | 298 | 91,735,672 | 19,534,309 | 370 | 30,327,769 | 7,701,561 | 294 |
Net operating income | 47,462,845 | 46,957,376 | 1 | 8,222,186 | 10,689,389 | (23) | 69,139,419 | 64,870,020 | 7 | 14,113,871 | 15,615,417 | (10) |
Less : Operating expenses | ||||||||||||
Personnel expenses | 15,025,888 | 10,757,563 | 40 | 3,589,185 | 1,298,590 | 176 | 18,490,530 | 13,676,004 | 35 | 4,366,500 | 2,052,471 | 113 |
Depreciation and amortisation | 2,567,704 | 2,442,964 | 5 | 662,470 | 650,546 | 2 | 3,187,482 | 2,905,296 | 10 | 818,978 | 771,543 | 6 |
Benefits, claims and underwriting expenditure | - | - | - | - | - | - | 11,715,338 | 8,955,217 | 31 | 3,379,032 | 1,945,539 | 74 |
Other expenses | 12,793,975 | 9,433,000 | 36 | 3,319,242 | 2,723,303 | 22 | 16,410,169 | 11,812,874 | 39 | 4,417,062 | 3,380,963 | 31 |
Total operating expenses | 30,387,567 | 22,633,527 | 34 | 7,570,897 | 4,672,439 | 62 | 49,803,519 | 37,349,391 | 33 | 12,981,572 | 8,150,516 | 59 |
Operating profit before taxes on financial services | 17,075,278 | 24,323,849 | (30) | 651,289 | 6,016,950 | (89) | 19,335,900 | 27,520,629 | (30) | 1,132,299 | 7,464,901 | (85) |
Less :Value Added Tax (VAT) on financial services | 4,932,774 | 4,498,822 | 10 | 670,010 | 929,654 | (28) | 5,070,791 | 4,759,882 | 7 | 684,974 | 1,002,267 | (32) |
: Social Security Contribution Levy | 168,598 | - | - | 168,598 | - | - | 176,825 | - | - | 176,825 | - | - |
Operating profit after taxes on financial services | 11,973,906 | 19,825,027 | (40) | (187,319) | 5,087,296 | (104) | 14,088,284 | 22,760,747 | (38) | 270,500 | 6,462,634 | (96) |
Share of profit of joint venture (net of income tax) | - | - | - | - | - | - | 331,973 | 292,837 | 13 | 330,819 | 148,362 | 123 |
PROFIT /LOSS BEFORE INCOME TAX | 11,973,906 | 19,825,027 | (40) | (187,319) | 5,087,296 | (104) | 14,420,257 | 23,053,584 | (37) | 601,319 | 6,610,996 | (91) |
Less: Income tax expense | (2,059,587) | 2,525,260 | (182) | (3,935,742) | 22,321 | (17,732) | (1,327,978) | 2,969,222 | (145) | (3,723,531) | (85,265) | 4,267 |
PROFIT FOR THE PERIOD | 14,033,493 | 17,299,767 | (19) | 3,748,423 | 5,064,975 | (26) | 15,748,235 | 20,084,362 | (22) | 4,324,850 | 6,696,261 | (35) |
Profit attributable to: | ||||||||||||
Equity holders of the Bank | 14,033,493 | 17,299,767 | (19) | 3,748,423 | 5,064,975 | (26) | 15,328,572 | 19,024,882 | (19) | 4,313,695 | 6,051,559 | (29) |
Non-controlling interests | - | - | - | - | - | - | 419,663 | 1,059,480 | (60) | 11,155 | 644,702 | (98) |
PROFIT FOR THE PERIOD | 14,033,493 | 17,299,767 | (19) | 3,748,423 | 5,064,975 | (26) | 15,748,235 | 20,084,362 | (22) | 4,324,850 | 6,696,261 | (35) |
Earnings per share | ||||||||||||
Basic earnings per ordinary share (Rs) | 26.20 | 32.30 | (19) | 7.00 | 9.46 | (26) | 28.62 | 35.52 | (19) | 8.05 | 11.30 | (29) |
Diluted earnings per ordinary share (Rs) | 26.20 | 32.30 | (19) | 7.00 | 9.46 | (26) | 28.62 | 35.52 | (19) | 8.05 | 11.30 | (29) |
3
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
BANK | BANK | GROUP | GROUP | |||||||||
For the year ended | For the quarter ended | For the year ended | For the quarter ended | |||||||||
31st December | 31st December | 31st December | 31st December | |||||||||
2022 | 2021 | % Increase/ | 2022 | 2021 | % Increase/ | 2022 | 2021 | % Increase/ | 2022 | 2021 | % Increase/ | |
(Audited) | (Audited) | (Decrease) | (Decrease) | (Audited) | (Audited) | (Decrease) | (Decrease) | |||||
Rs 000 | Rs 000 | Rs 000 | Rs 000 | Rs 000 | Rs 000 | Rs 000 | Rs 000 | |||||
PROFIT FOR THE PERIOD | 14,033,493 | 17,299,767 | (19) | 3,748,423 | 5,064,975 | (26) | 15,748,235 | 20,084,362 | (22) | 4,324,850 | 6,696,261 | (35) |
Other comprehensive income that will not be | ||||||||||||
reclassified to profit or loss in subsequent | ||||||||||||
periods | ||||||||||||
Change in fair value of investments in equity | ||||||||||||
instruments designated at fair value | ||||||||||||
through other comprehensive income | (1,618,910) | (257,524) | 529 | 212,576 | 2,300 | 9,142 | (1,618,910) | (257,524) | 529 | 212,576 | 2,300 | 9,142 |
Remeasurement of post-employment benefit | ||||||||||||
obligations | 1,857,052 | 1,030,928 | 80 | 1,857,052 | 1,030,928 | 80 | 1,911,065 | 1,100,788 | 74 | 1,898,583 | 1,075,068 | (77) |
Revaluation gain on freehold land and buildings | - | 4,878,773 | (100) | - | 4,878,773 | (100) | 200,071 | 8,547,116 | (98) | - | 8,547,116 | 100 |
Share of other comprehensive income of joint venture | ||||||||||||
that will not be reclassified to profit or loss | - | - | - | - | - | - | 448,051 | 1,108 | 40,338 | 448,051 | 1,108 | (40,338) |
Less:Tax expense relating to items that will not be | ||||||||||||
reclassified to profit or loss | (1,157,240) | (576,923) | (100) | (1,157,240) | (1,155,785) | - | (1,602,951) | (786,036) | 104 | (1,552,368) | (2,033,270) | 24 |
Total other comprehensive income that will not be | ||||||||||||
reclassified to profit or loss | (919,098) | 5,075,254 | (118) | 912,388 | 4,756,216 | (81) | (662,674) | 8,605,452 | (108) | 1,006,842 | 7,592,322 | 87 |
Other comprehensive income that will be | ||||||||||||
reclassified to profit or loss in subsequent | ||||||||||||
periods | ||||||||||||
Debt instruments at fair value through other | ||||||||||||
comprehensive income : | ||||||||||||
Net gains / (losses) on investments in debt | ||||||||||||
instruments measured at fair value through other | ||||||||||||
comprehensive income | (3,634,091) | (2,972,433) | 22 | - | (840,501) | (100) | (5,287,257) | (3,916,786) | 35 | (30,467) | (1,104,680) | (97) |
Cumulative net gains/(losses) on debt instruments | ||||||||||||
measured at fair value through other | ||||||||||||
comprehensive income that are reclassified to | ||||||||||||
amortised cost | 5,577,587 | - | - | - | - | - | 6,281,572 | - | - | - | - | - |
Reclassification of net gains on de-recognition of | ||||||||||||
debt instruments at fair value through other | ||||||||||||
comprehensive income to income statement | - | - | - | - | - | - | - | (5,874) | (100) | - | 3,616 | (100) |
Net change in expected credit losses of debt | ||||||||||||
securities measured at fair value through other | ||||||||||||
comprehensive income | (295,445) | 186,758 | (258) | - | 160,437 | (100) | (295,445) | 186,758 | (258) | - | 160,437 | (100) |
Transfer to life policy holder reserve fund | - | - | - | - | - | - | 1,244,429 | 851,693 | 46 | 16,636 | 236,838 | (93) |
Share of other comprehensive income of joint venture | ||||||||||||
that will be reclassified to profit or loss | - | - | - | - | - | - | (7,090) | 61,665 | (111) | (685,650) | 3,445 | (20,003) |
Less: Tax expense relating to items that will be | ||||||||||||
reclassified to profit or loss | (466,439) | 754,541 | (162) | - | 201,720 | (100) | (1,227,236) | 763,270 | (261) | (786,343) | 196,823 | (500) |
Total other comprehensive income that will be | ||||||||||||
reclassified to profit or loss | 1,181,612 | (2,031,134) | (158) | - | (478,344) | (100) | 708,973 | (2,059,274) | 134 | (1,485,824) | (503,521) | 195 |
OTHER COMPREHENSIVE INCOME FOR THE PERIOD, | ||||||||||||
NET OF TAX | 262,514 | 3,044,120 | (91) | 912,388 | 4,277,872 | (79) | 46,299 | 6,546,178 | (99) | (478,982) | 7,088,801 | (107) |
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD, | ||||||||||||
NET OF TAX | 14,296,007 | 20,343,887 | (30) | 4,660,811 | 9,342,847 | (50) | 15,794,534 | 26,630,540 | (41) | 3,845,868 | 13,785,062 | (72) |
Total comprehensive income attributable to: | ||||||||||||
Equity holders of the Bank | 14,296,007 | 20,343,887 | (30) | 4,660,811 | 9,342,847 | (50) | 15,119,144 | 25,574,417 | (41) | 4,481,909 | 14,191,893 | (68) |
Non-controlling interests | - | - | - | - | - | - | 675,390 | 1,056,123 | (36) | (636,041) | (406,831) | 56 |
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD, | ||||||||||||
NET OF TAX | 14,296,007 | 20,343,887 | (30) | 4,660,811 | 9,342,847 | (50) | 15,794,534 | 26,630,540 | (41) | 3,845,868 | 13,785,062 | (72) |
4
STATEMENT OF FINANCIAL POSITION
BANK | GROUP | |||||
As at | As at | % Increase / | As at | As at | % Increase / | |
31.12.2022 | 31.12.2021 | (Decrease) | 31.12.2022 | 31.12.2021 | (Decrease) | |
(Audited) | (Audited) | (Audited) | (Audited) | |||
Rs 000 | Rs 000 | Rs 000 | Rs 000 | |||
ASSETS | ||||||
Cash and cash equivalents | 80,238,881 | 38,185,254 | 110 | 80,629,698 | 40,900,372 | 97 |
Placements with banks | 54,371,028 | - | - | 58,172,046 | 6,371,273 | 813 |
Balances with Central Bank of Sri Lanka | 32,344,341 | 25,820,489 | 25 | 32,344,341 | 25,820,489 | 25 |
Reverse repurchase agreements | - | - | - | 1,380,579 | 6,246,276 | (78) |
Derivative financial instruments | 5,370,501 | 927,487 | 479 | 5,370,501 | 927,487 | 479 |
Financial assets measured at fair value through profit | ||||||
or loss | 111,617 | 103,365 | 8 | 236,178 | 862,641 | (73) |
Financial assets measured at amortised cost - loans and | ||||||
advances to customers | 974,131,252 | 876,254,693 | 11 | 1,014,518,939 | 911,253,345 | 11 |
Financial assets measured at amortised cost - debt and | ||||||
other financial instruments | 448,791,874 | 160,677,520 | 179 | 479,787,015 | 171,930,640 | 179 |
Financial assets measured at fair value through other | ||||||
comprehensive income | 2,706,660 | 203,426,433 | (99) | 6,062,195 | 210,804,487 | (97) |
Investment in joint venture | 755,000 | 755,000 | - | 3,650,354 | 2,877,420 | 27 |
Investment in subsidiaries | 3,017,285 | 3,017,285 | - | - | - | - |
Investment properties | 464,439 | 469,774 | (1) | 935,549 | 964,854 | (3) |
Property, plant and equipment | 24,835,729 | 24,953,738 | - | 49,616,338 | 49,724,473 | (0) |
Right-of-use assets | 5,397,734 | 5,439,384 | (1) | 2,463,788 | 2,177,902 | 13 |
Intangible assets and goodwill | 1,250,154 | 1,429,544 | (13) | 1,771,092 | 1,989,134 | (11) |
Deferred tax assets | 30,471,351 | 4,461,561 | 583 | 30,763,166 | 4,941,105 | 523 |
Other assets | 26,281,118 | 12,415,094 | 112 | 30,573,372 | 15,858,665 | 93 |
Total assets | 1,690,538,964 | 1,358,336,621 | 24 | 1,798,275,151 | 1,453,650,563 | 24 |
LIABILITIES | ||||||
Due to banks | 6,104,578 | 17,075,502 | (64) | 6,104,578 | 17,075,502 | (64) |
Derivative financial instruments | 25,632 | 353,356 | (93) | 25,632 | 353,356 | (93) |
Securities sold under repurchase agreements | 6,540,014 | 33,524,226 | (80) | 6,540,014 | 33,524,226 | (80) |
Financial liabilities measured at amortised cost - due to | ||||||
depositors | 1,407,800,492 | 1,075,709,287 | 31 | 1,443,179,121 | 1,107,065,820 | 30 |
Dividends payable | 1,008,325 | 989,212 | 2 | 1,038,542 | 1,013,629 | 2 |
Financial liabilities measured at amortised cost - other | ||||||
borrowings | 32,350,594 | 24,747,869 | 31 | 33,385,598 | 25,555,834 | 31 |
Debt securities issued | 2,062,950 | 1,962,749 | 5 | 2,555,109 | 2,465,085 | 4 |
Current tax liabilities | 30,025,919 | 10,051,689 | 199 | 30,460,242 | 10,518,569 | 190 |
Deferred tax liabilities | - | - | - | 6,465,029 | 5,157,978 | 25 |
Insurance provision - life | - | - | - | 24,592,403 | 20,378,015 | 21 |
Insurance provision - non life | - | - | - | 4,181,588 | 3,735,921 | 12 |
Other provisions | 5,000,513 | 3,928,598 | 27 | 5,467,274 | 4,550,802 | 20 |
Other liabilities | 17,378,270 | 14,400,456 | 21 | 18,041,795 | 14,596,651 | 24 |
Subordinated term debts | 22,914,299 | 23,552,323 | (3) | 26,151,300 | 24,391,912 | 7 |
Total liabilities | 1,531,211,586 | 1,206,295,267 | 27 | 1,608,188,225 | 1,270,383,300 | 27 |
5
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Hatton National Bank plc published this content on 20 February 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 February 2023 10:39:06 UTC.
