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| Friday, 14 November 2003 |
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HNB's National Rating lowered to SL A - (SL A Minus) Fitch Ratings Lanka Ltd (FRL) has lowered Hatton National Bank's (HNB) National Long Term Rating to SL A- (SL A minus), and removed HNB's rating from Rating Watch. FRL's rating of HNB reflects the banks weaker capital position, due to a relatively high level of non-performing loans, and the low provision cover against such loans. HNB reported significantly higher NPLs as at Dec 2002, in comparison to 2001. The increase was largely due to more accurate classification by HNB, rather than new NPLs. While this included the classification of a few large accounts, which the bank had not classified previously, but identified as weak by FRL, it also included others not identified at that time. HNB has stepped up provisioning over the last two years. Provision charges consumed 61% and 42% of pre provisioning income during the financial year ended 2002 and the 1st H of 2003 respectively. However in FRL's view, loan loss reserves are unlikely to cover potential losses on NPLs. As at June 2003 loan loss reserves covered 28% of NPLs, and the banks net NPL/equity was approximately 145%. Included among NPLs were loans to a large textile manufacturer and to Brown & Co, a related party of the bank. |
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