Fitch Ratings Lanka this week affirmed HNB’s National Long-term rating at 'AA-(lka)' reflecting its sustained profile in terms of its good profitability, asset quality and capitalisation among local commercial banks. At the same time, Fitch has affirmed the bank's subordinated debentures at 'A+(lka)'.
It said HNB's loan growth was 9% in FY08, but declined by 4% in Q109 similar to its peers.
The overall loan mix remained the same at FYE08. Credit concentrations remained high at FYE08, as the five-largest total exposures accounted for 10% of loans and 75% of equity, including related party exposures to the Stassens group at 4% of loans and 30% of equity. Subsequent to more stringent NPL classification after May 2008 for installment loans, NPLs/Loans deteriorated to 8.3% at Q109 (FYE08: 6.8%).
Consequent to asset quality deterioration, HNB curtailed lending and focused on the recovery of defaults from the preceding period of high interest rates and high inflation. Fitch notes that the current low interest rate regime could ease pressure of further deterioration.
Incorporated in its present form in 1970, HNB is Sri Lanka's fourth-largest licensed commercial bank with an asset base of Rs 268 billion at Q109. Entities related to the Stassen's group and the Brown's group held 31% and 15%, respectively, of voting equity at FYE08.