HSBC local unit 1H profit flat as margins fall, other incomes decline

The local unit of The Hongkong and Shanghai Banking Corporation Limited (HSBC) saw its net profits for the six months ended in June 30, 2016 (1H16) remained virtually flat at Rs.3.27 billion as the margins narrowed and deposits fell.  

The net fee and commission income also declined by 7 percent to Rs.1.46 billion from a year ago. 

Although the interest income rose by 3.9 percent year-on-year (yoy) to Rs.12.37 billion the corresponding interest cost rose by a faster 10.2 percent yoy to Rs. 3.97 billion resulting in a net interest income of Rs. 8.39 billion, a 1.2 percent increase yoy.  

The bank gave Rs.16 billion worth of loans recording an 8.6 percent increase in loans during the period on a net basis and close to Rs.20 billion were in foreign currency. 
The bank’s loan book was Rs.201.4 billion, of which, 69 percent was in 
foreign currency.

The Rs.19.2 billion credit card portfolio of HSBC Sri Lanka – the largest in the industry – did not grow. 
The deposits dropped by Rs.3.3 billion to Rs. 179.6 billion, out of which, 35 percent is in foreign currency. 
The low cost current and savings account (CASA) ratio was 42 percent, a contraction from 45 percent in December 2015. 
The bank borrowed as much as Rs.13.4 billion, most likely in foreign currency. 
Meanwhile, the bank was seen selling Rs.33.6 billion worth of treasury bills but bought Rs.28.2 billion worth of bonds – all classified under available-for-sale – thus can be sold when the interest rates ease booking capital gains. The bank also made a gain of Rs.1.2 billion from its trading portfolio, up from Rs.478.1 million a year ago. 

Treasury bond rates were attractive than treasury bill rates and this also cushioned the bank’s net interest margin which edged down to 4.09 percent from 4.19 percent in December 2015. 
Gross non-performing loan ratio – an indicator of the quality of the loan portfolio – was better at 0.97 percent from 1.04 percent in December. 

HSBC Sri Lanka operates 15 branches and has 1, 272 employees as of June 30, 2016.