HNB says troubles in agri, tourism, construction sectors slowed loan growth

• HNB recorded 9% loan growth for FY17 while its peers posted over 20% growth
• “Being a challenging year, we had to be careful”- HNB MD Jonathan Alles
• Says HNB will be more aggressive this year having strong capital buffers​

Hatton National Bank PLC (HNB), Sri Lanka’s second largest private lender by assets, is hoping to be more aggressive in 2018, after a challenging environment for the key agriculture, tourism and construction sectors held back higher lending, the top management said this week.

“There were a lot of challenges in the agriculture, tourism and construction sectors,” HNB Deputy General Manager SME and Midmarket Jude Fernando said at HNB Investor Forum 2018.

HNB’s loan book grew by just 9 percent year-on-year (YoY) in 2017, compared to the largest private bank, Commercial Bank of Ceylon PLC, the loan book of which grew at just under 20 percent YoY, while the third largest, Sampath Bank PLC, managed to expand its loan book by 23 percent YoY. 

The industry private credit growth in comparison was 14.7 percent in 2017, falling compared to the previous year, due to tight monetary policy and the limitations the government placed on vehicle leasing, according to the Central Bank.

However, in HNB’s case, the tight monetary conditions and the drought, which disrupted agriculture for four seasons, saw the bank becoming a bit more conservative in growing its loan book, as it even had to account for Rs.3 billion in impairments for loans given to the agriculture sector and a couple of big corporate clients, compared to an impairment of just Rs.237.2 million YoY.

HNB Managing Director Jonathan Alles said that HNB is not willing to compromise on the quality of credit to drive growth, which was why the bank didn’t expand its loan book aggressively in 2017.

“Being a challenging year, we had to be careful. We had to relook at our portfolio and there was a conscious effort to make sure that we were going ahead with all the initiatives we had put in place to improve portfolio quality,” he said, while noting that the bank is trying its best to recover the Rs.3 billion. 
He did not express much worry over not expanding the loan book, since HNB was able to post a 16 percent growth of its bottom line last year without deteriorating the quality of loans given.

Not growing the loan book had also given HNB the space  not to go to its shareholders often to seek permission to raise more capital to meet the regulatory requirements, Alles said.

HNB opted for a rights issue in 2017 to raise Rs.14.5 billion, while some other banks had to resort to multiple capital raising exercises.

Alles said that with the bank now comfortably capitalized, it is expecting to become more aggressive in the coming year.

“We foresee that we are now nicely positioned to go out and become a little more aggressive,” he said.

He said that the industry credit growth is expected to be below 15 percent this year if the agriculture sector doesn’t post a strong recovery and that HNB is expected to grow its loan book by just above the industry average in such circumstances.

Alles added that the bank would focus on agriculture, small and medium enterprises, microfinance and select corporate lending activities during 2018.
Further, he said the bank would also aggressively attempt to expand its deposit base.

“We will be more aggressive on deposit mobilization but we are not necessarily keen on raising our rates,” he said. (CW)