HNB Group records Rs 6.2 billion PAT

The financial year 2011 presented a set of new challenges for the Banking sector, different from those it witnessed during the previous two years. In 2011 the banking sector experienced an unprecedented growth in demand for credit recording a 32% growth in loans and advances compared to 24% in 2010. The bigger challenge for the banking sector, however, was to manage its liquidity as the deposits witnessed only a 19% growth during the year. In addition, the healthy margins enjoyed by the industry in the past came under persistent pressure with interest rates remaining close to single digit for the major part of 2011.

Chairperson Dr Ranee Jayamaha

Despite the challenges faced the Bank recorded strong results in 2011 and the Chairperson Dr Ranee Jayamaha commented that “in 2011, we stood strong and tall for our clients, depositors and shareholders in an uncertain world. Our passion to perform and fresh thinking helped deliver business solutions that met our client specific commercial needs across the entirety of the branch network last year, with no compromise on quality; building lasting and fulfilling relationships with customers from all walks of life”

During the financial year 2011, the Bank’s interest income recorded a growth of 9.6% due to rapid growth in loans and advances, compared to the negative growth witnessed in 2010. However growth in interest income did not keep pace with the increase in loans and advances, demonstrating a drop in yields compared to 2010. However, interest cost in 2011 increased by 13.9% during the same period, despite deposits growing at a slower pace than advances. Hence the Bank’s net interest margin narrowed in 2011. This was an industry-wide phenomenon witnessed during the financial year. Accordingly, the net interest income of the Bank grew by 5.5% in 2011 compared to 2010.

The Bank was successful in growing its commission income base by more than 32% during the year with trade income and card commissions leading the way. However exchange income witnessed a setback during 2011 due to relatively stable exchange rates for the most part of the year.

A significant drop of 49.9% was noted in other income due to the absence of capital gains realized in 2010 from the disposal of investments in Commercial Bank of Ceylon PLC, Distilleries Company of Sri Lanka PLC, Acuity Securities (Pvt) Ltd and Lanka Ventures PLC and the marked to market gains recorded from equity investments in the previous year.

However, the dividend income increased by Rs 200 million as a result of higher dividend declared by DFCC. Accordingly, the net income of the Bank for 2011 stood at Rs 21.2 billion, which is a 5.2% growth from the previous year. During the year the bank focused on capacity building by opening 35 new customer centres, which is by far the most aggressive network expansion during the past decade.

Commenting on the expansion drive, Rajendra Theagarajah, Managing Director/CEO stated that “in 2011, our focus was essentially to further penetrate the rural sector, and as such we followed a concerted strategy of network penetration.