At a Bank level, HNB's PAT improved by 20.6% YoY to Rs. 8.6 billion for the six months period to June 2018. The Bank's interest income grew by 9.6% YoY, outpacing the 5.6% growth reported in interest expenses resulting in a 15.3% YoY increase in NII to Rs. 22.0 billion for the period under review.
Net Fee and Commission income continues to supplement core banking, contributing 15.9% of the Total Operating Income, increasing by 8.8% YoY to Rs. 4.4 billion largely driven by the growth in the Credit Card income and Trade Finance.
Net losses on trading increased by 61.7% YoY to Rs. 1.4 billion during the first half of 2018 on account of higher depreciation of the LKR against USD compared to the corresponding period of 2017. However, the positive impact on revaluation propelled Other Operating Income to Rs. 2.7 billion which is a 103.6% YoY increase.
The banking industry is witnessing a sharp increase in NPAs with significant collection and debt recovery difficulties experienced across the country. The agriculture sector continues to underperform due to adverse weather conditions while the construction sector is saddled with long delays in payments. In this backdrop, HNB's NPA ratio increased to 2.91% as at the end of June 2018 albeit remaining below the industry average which deteriorated to 3.3% for the period. Accordingly, the total impairment charge increased to Rs. 1.9 billion for 1H 2018, principally on account of the increase in collective impairment charge to Rs. 1.6 billion. The impairment cost on individually significant loans however, declined by 42.1% YoY to Rs. 342.3 billion.
The continuous focus on operational excellence, process reengineering and digitalization efforts to improve productivity enabled the continuing improvement in the cost to income ratio to 37.7%, compared to 41.4% reported during 1H2017.
The Bank's PBT grew by 25.2% YoY to Rs. 12.6 billion during 1H 2018 as compared to the 1H 2017. The impact of the changes effected in the new Inland Revenue Act resulted in an increase of 36.7% in income tax for the period with the total effective tax rate, including financial VAT and NBT increasing to 44.4% for the period. The resulting PAT of Rs. 8.6 billion represented a ROA of 1.76% and ROE of 15.54% for 1H 2018. The Group recorded a ROA of 1.85%, compared to 1.61% recorded in the commensurate period of 2017.
The Bank's asset base grew by 4.8% during the first six months of the year to cross the Rs. 1 trillion mark. A robust 8.9% growth in the loan book since December 2017 boosted net loans to Rs. 695.7 billion, while deposits grew by 5.7% to Rs. 741.2 billion. The Bank's Tier I Capital Ratio and Total Capital Ratios remained strong at 12.48% and 15.22% respectively, well ahead of the required regulatory minimums of 8.875% and 12.875%.
Commenting on HNB's performance, MD/CEO Jonathan Alles stated: "We are pleased with our performance during the first half of 2018 in what has been an extremely challenging environment and are humbled by the recognition as the highest ranked bank in Sri Lanka by the prestigious Banker Magazine's Global Top 1,000 Banks rankings. The passion, commitment and dedication of our team and their relentless drive towards service excellence supported by the on-going automation efforts continues to remain the driving force underpinning our success."
"As we move in to the second half of 2018, we are fully cognizant of the macro-economic challenges, slow-down in economic growth and market liquidity constraints. These primary challenges and the need for additional capital to meet the enhanced regulatory requirements and taxes, continue to hamper growth in the banking sector. As such, we remain optimistic of sustained policy consistency towards conducive environment for growth to enable the banking sector to be the prime catalyst for economic growth. We look forward to opportunities to support national development and to stimulate micro, small and medium sector enterprises and to play a pivotal role in the revival of exports across all sectors," Alles added.