Fitch affirms HNB's National Rating

Fitch Ratings Lanka has affirmed Sri Lanka-based Hatton National Bank Plc's (HNB) National Long-term rating at 'AA-(lka)' (AA minus (lka)), reflecting the bank's good profitability, asset quality and solvency. At the same time, Fitch has also affirmed the 'A+(lka)' rating of the bank's subordinated debentures. The Outlook remains Stable.

HNB maintained a loan growth of 19.8% in FY07 above the banking system's average loan growth of 18.9%, although this level of growth is not expected to be sustained in the current economic environment.

Focus for the bank has remained primarily on the consumer segment, which comprised 49% of loans at FYE07. Meanwhile, credit concentrations remained high at FYE07, as the five largest total exposures accounted for 11% of HNB's loans and 84% of its equity, including related party exposures at 5% of loans and 35% of equity at FYE07.

The bank's profitability as measured by ROA increased to 1.43% in FY07 and compared favorably against most of its peers, due to an expansion in interest margins (5.51% in FY07 against 4.99% in FY06) arising from higher yields that reflected HNB's aforementioned customer segment exposures.