Total Operating income doubles to Rs LKR 63.3 Bn
Impairment for 1H exceeds Rs 40 Bn
Net Stage III loan ratio improves to 2.46%
Tier I capital ratio at 11.39% and total capital ratio at 14.54%
Liquid Coverage ratio at 210% well above statutory minimum of 90%
HNB Group recorded a Profit Before Tax of Rs 6.7 Bn and a Profit After Tax of Rs 6.1 Bn during
the first six months of 2022 amid extremely challenging operating environment. Commenting on the
first half, Aruni Goonetilleke Chairperson of HNB PLC stated that “the extraordinary market
conditions have created a set of new challenges for the entire banking sector. As the external factors
continue to be volatile it is important to take necessary steps to minimize the negative impact due to
the risk factors. At the same time, we must be open to opportunities that arise even during a crisis
situation. Our performance during the first half reflects this meticulous and prudent approach as we
stay focused on delivering long term value to our stakeholders”.
The gross income of the Bank grew by 71% YoY to Rs 97.1 Bn driven by a 53% growth in interest
income, 61% growth in fee income and 349% growth in exchange income. The exceptional growth in
net interest income from Rs 23.2 Bn to Rs 40.2 Bn was primarily due to the increase in average
AWPLR by approximately 16 percentage points in line with the tight monetary policy adopted by the
Central Bank of Sri Lanka.
The Fee income also recorded a steady growth increasing to Rs 7.3 Bn for the 6 months mainly on
account of improved trade and card income. The total exchange income improved to Rs 15.3 Bn
from Rs 3.4 Bn during the first half of 2021, as the rupee depreciated by over 80% during the period.
Accordingly, the total operating income improved to Rs 63.3 Bn recording a 100% YoY growth.
The Bank made a total impairment of Rs 40.1 Bn for the first six months of the year compared to a
charge of Rs 6.3 Bn in the previous year. The total impairment charge for the period included an
impairment of Rs 27.3 Bn on account of the foreign currency denominated government securities
held by the Bank pursuant to the suspension of external debt repayment by the Government of Sri
Lanka and the sovereign downgrade. Considering the volatilities and the economic factors, the Bank
recognized an impairment of Rs 22.7 Bn on account of loans and advances for 1H 2022 compared to
the provision of Rs 6.2 Bn made in the corresponding period of 2021. An amount totaling to Rs
10.8Bn relating to the exchange impact on impairment of foreign currency loans and investments
was set off against the exchange income for the period. The net stage III ratio of the Bank improved
to 2.46% from 2.55% as at end of December 2021 while the provision coverage on stage III loans
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improved from 56% to 63% maintaining the position as one of the best in terms of asset quality
among peers.
The operating expenses for the 1H of 2022, increased by 26% to Rs 14.9 Bn mainly due to
devaluation of the currency, higher energy costs and increase in staff expenses subsequent to salary
revisions effected at the beginning of the year. Nevertheless, the cost to income ratio of the Bank
improved by approximately 14 percentage points to 23.5% as total operating income recorded a
higher growth during the period.
The Bank recorded a Profit Before Tax of Rs 6.0 Bn and Profit After Tax of Rs 5.5 Bn for the six
months ended June 2022 compared Rs 10.9 Bn and Rs 9.1 Bn in the corresponding period of 2021.
Commenting on the performance of HNB during the first six months of 2022, Jonathan Alles,
Managing Director / CEO stated that “since 2019 HNB has been supporting its customers to revive
their livelihoods by extending capital and interest moratoria. With such assistance coming to an end
and debilitating economic conditions impacting repayment capacity of customers, we have
conservatively recognized substantial impairment on our loans and advances. Furthermore, ahead of
the finalization of the debt restructuring programme with the IMF, we have prudently made a
significant impairment on our investments in Sri Lanka Development Bonds and Sri Lanka Sovereign
Bonds during the first half of 2022. This resulted in the exceptional growth in total operating income
being absorbed to a great extent.”
“Recently a banking consortium which included HNB and seven other banks appointed a Singapore
based legal firm to act as the common legal counsel to protect the interest of these banks in terms
of their holding in international sovereign bonds. Given that the banking sector is the lifeline of the
economy, we strongly believe that the authorities will decide on a mutually agreeable solution to
safeguard the interest of the banking sector.”
He added that “notwithstanding the external challenges, we will continue our journey on ensuring an
enjoyable experience to our customers through unparalleled service, digitalization and process re-
engineering while continuously developing our human capital in order to be ready to serve and
support post crisis Sri Lanka and Sri Lankans”.
The Bank’s asset base expanded by Rs 239 Bn to Rs 1.6 Trillion during the first six months, with
loans and advances growing by Rs 138 Bn to Rs 1.1 Trillion. Total Deposits of the Bank grew to Rs
1.3 Trillion by Rs 217 Bn during 1H 2022. The balance sheet growth was party supported by the
devaluation of the rupee during the period.
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The Bank reported Tier I and Total Capital Adequacy Ratios of 11.39% and 14.54% respectively
against the minimum requirement of 9.5% and 13.5% respectively. The Central Bank also permitted
licensed commercial banks to drawdown up to 250 bps on the capital conservation buffer lowering
the requirement to 7% and 11% respectively. Furthermore, the Bank’s liquidity position continued to
be strong with liquid asset ratio and all currency liquidity coverage ratio at 23.9% and 210.3%, against
the statutory requirements of 20% and 90%, respectively.
Under extremely stressful market conditions all group companies contributed positively towards the
first half performance of the Group. 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
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