Inv Investor Updat estor Update 1 e 1H 2020 H 2020 Fin Financia - - PowerPoint PPT Presentation

Inv Investor Updat estor Update 1 e 1H 2020 H 2020

Fin Financia ancial l Hig Highlig hlights hts 1H 1H 202 2020

Ne Net t Ope Opera rati ting Inc Income e - Grou roup p

Interest Income Interest Expenses NII Net Fee Income Net Insurance Premium Impairment Net Operating Income 1H 20 (Rs Bn) 1H 19 (Rs Bn) Growth % 58.5 (32.7) 25.9 3.7 3.9 (9.3) 26.1 63.6 (34.4) 29.2 4.9 3.9 (7.0) 31.0 8% 5% 11% 26% 1% 32% 16% Other Income 2.2 0.02 10690%

Ex Expe penses es & & Profits Profits - Grou roup p

Operating Expenses VAT, NBT & DRL PBT Income Tax PAT 1H 20 (Rs Bn) 1H 19 (Rs Bn) Growth % (17.1) (1.9) 7.4 (1.9) 5.5 (18.1) (4.0) 9.0 (3.8) 5.1 6% 54% 18% 50% 7% Profit Attributable to Shareholders 5.2 4.9 5%

Ne Net t Ope Opera rati ting Inc Income e - Ba Bank

Interest Income Interest Expenses NII Net Fee Income Impairment Net Operating Income 1H 20 (Rs Bn) 1H 19 (Rs Bn) Growth % 53.8 (31.4) 22.4 3.5 (9.1) 18.8 59.0 (33.1) 25.9 4.4 (6.3) 24.0 9% 5% 13% 22% 45% 22% Other Income 2.0 (0.1)

2001%

Ex Expe penses es & & Profits Profits - Ba Bank

Operating Expenses VAT, NBT & DRL PBT Income Tax PAT 1H 20 (Rs Bn) 1H 19 (Rs Bn) Growth % (11.2) (1.7) 5.9 (1.4) 4.5 (11.9) (3.8) 8.3 (3.5) 4.8 6% 55% 29% 60% 7%

Mo Movem vemen ent in in Gr Grou

• up

p Profit Profit At Attribu ributable able to

• Shar

Shareh eholder

• lders

Rs Bn (11%) +10%

4.92 5.17

• 1.0

2.0 3.0 4.0 5.0 6.0 1H 19 Group PAS NII Other Income Impairment OpEx Taxes Minority 1H 20 PAS

+32% (6%) (52%) +48% +5%

DuPo DuPont t Analysis lysis – Grou roup p

ROE 7.00% (6.99%)

ROA 0.90% (0.87%)

NII 4.24% (4.93%) Other income 1.60% (1.50%) Impairment 1.52% (1.19%) Operating Costs 2.80% (3.06%) Taxation 0.62% (1.32%)

Leverage Multiplier 8.26x (8.41x) Minority Interest 0.05% (0.04%) 1H 20 1H 19

Ma Mark rket et Rates tes & NIMs NIMs

4% 5% 6% 7% 8% 9% 10% 11% 12% 4,000 4,200 4,400 4,600 4,800 5,000 5,200 5,400 5,600 5,800 6,000 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20

Pvt Credit (Rs Bn)

Private Credit YoY Growth (R) 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 2020

Market Rates

AWPLR T Bill AWFDR 4.80% 4.87% 5.18% 4.91% 5.28% 4.26% 5.29% 5.39% 5.61% 5.38% 5.71% 4.68% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 2016 2017 2018 2019 1H 19 1H 20

NIM

Bank Group

• Market rates drop steeply amid monetary

loosening

• No commensurate pick up in credit due to

uncertainty

• Leads to 100 bps YoY drop in HNB NIM’s at

Bank & Group level

Non Non Fund nd Inc Income

• COVID 19 - total embargo on non essential imports,

Exports down, Lower Credit Card usage, etc.

• Restrictions on charging fees by CBSL – Cheque

Returns, Late Payments on Credit Cards, etc. till 30th Sept 2020

• Affects Fee & Commission income significantly –

down 22.2% YoY to Rs 3.5 Bn at Bank level

• However May/June witness fee income levels

returning to normalcy

• Exchange income improves by Rs 2.1Bn YoY
• Reduction in SWAP cost
• Total Non fund Income grows 8.2% YoY to Rs 9.5 Bn

Cards 12% Loans&Deposits 8% Guarantees 5% Trade&Remittanc e 8% Exchange Gains 16% Insurance Premium 41% Others 10%

Composition of Non Fund Income

• 100

200 300 400 500 600 700 800 900 Jan Feb Mar Apr May June

Month wise Fee & Commission (Rs Mn)

2020 2019

Digital Initiatives

• HNB SOLO, AppiGo, HNB MOMO, etc. boost fees

from Digital Channels

• Increased usage of IPG services
• Increased uptake among merchants for SOLO,

AppiGo

Asset Qu et Quality lity

• Balance between assistance to clientele/economy and asset

quality as well as sustainable business under scenario of increased credit risk faced by sector – 40% of loan book under moratoriums

• Set up of Special Asset Management Unit to proactively assist

struggling clients

• Comprehensive revision of Credit Policy during COVID
• NPA up 50 bps in 1H
• Slightly increasing trend in Consumption related NPA

Agriculture, Forestry & Fishing 6% Construction & Infra Dev 16% Consumption 12% Financial Services 8% Health Care, Social & Support Services 14% Manufacturing 11% Tourism 6% Wholesale & Retail Trade 18% Others 9%

Sector Wise Loans

5.91% 5.90% 6.40% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 2016 2017 2018 2019 Q1 20 Q2 20

Gross NPA

HNB COMB Sampath Surge in FY 19 due to a SOE facility being classified as NPA despite treasury guarantee Agriculture, Forestry & Fishing 9% Construction & Infra Dev 40% Consumption 7% Financial Services 3% Health Care, Social & Support Services 5% Manufacturing 12% Tourism 4% Wholesale & Retail Trade 18% Others 2%

Sector Wise NPA

TO TOI I & & Ope Opera rati ting Costs ts

• Concerted effort to reduce OpEx to mitigate

COVID impact

• Outsourcing and supplier agreements revised
• Discretionary budgets revised – Temporary

curtailing of advertising, promotions etc.

• Suspension
• f

intern /

• utsourced

staff contracts until the business growth improves

• We however pursued critical IT investments

such as New Core Banking, BI Visualization, LOS, etc. Core Banking was successfully rolled

• ut in August
• Cost to Income unchanged from FY 2019 at

Bank and Group level

Bank TOI & OpEx down 7.7% YoY and 6% YoY respectively

40% 40% 48% 48% 0% 10% 20% 30% 40% 50% 60% 2016 2017 2018 2019 1H 20

Cost to Income

Bank Group

12 11 18 17 5 10 15 20 25 30 35 40 2016 2017 2018 2019 1H 19 1H 20

Op Oper erat ating g Expen penses ses (R (Rs s Bn)

Bank Group

Ta Taxes es

• Abolishing of DRL & NBT provides relief to COVID impacted banking sector.
• DRL & NBT not being allowable expenses for Corporate Tax resulted in significantly high effective tax rate of 60.1% for 1H 19.

29.8% 25.3% 32.4% 24.0% 23.8% 42.3% 39.2% 47.1% 46.8% 41.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% 2016 2017 2018 2019 1H 20

Bank

Total Effective Tax Rate Effective Income Tax Rate 42.2% 41.1% 42.1% 47.6% 39.7% 30.4% 27.5% 27.7% 26.4% 25.9% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% 2016 2017 2018 2019 1H 20

Group

Total Effective Tax Rate Effective Income Tax Rate

Len ending ng & & De Depo posits ts

• Loan growth mirrors decline in Private Credit as borrowers

defer capital investments, seek working capital funds

• Healthy mix maintained in loan book
• Impressive CASA growth of Rs 34 Bn during tumultuous 1H.
• CASA ratio up 170 bps in 6 months to 36.9%
• Facilities totalling over Rs 11.5 Bn approved under the CBSL

relief scheme at present

43% 30% 22% 5%

Loan Mix

Corporate SME & Micro Retail Mid Market 772 773 810 865 300 400 500 600 700 800 900 2016 2017 2018 2019 1H 20

Loans & Deposits (Rs Bn)

Gross Loans Deposits Deposits Grow 6.8% in 6 months Gross Loans remain flat CASA up 12.1% since 2019 35.2% 36.9% 64.8% 63.1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2019 1H 2020

Deposit Mix (Rs Bn)

Term CASA

Capi pita tal l & & Liquid quidity ty

• Liquidity Risk committee set up during lockdown with weekly meetings chaired by CEO; Increase in frequency of ALCO monitoring
• Fresh borrowings being finalised with foreign DFIs, extension on loan repayments received
• SLAR at 32.9%, well above 20% regulatory minimum
• CAR ratios well in excess of minimum

15.3% 19.1% 8.5% 12.5% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 2016 2017 2018 2019 1H 20

Capital Adequacy

HNB Tier I HNB Total CAR Reg Min - Tier I Reg Min - Total CAR 32.9% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 2016 2017 2018 2019 1H 20

Liquidity (SLAR)

HNB (DBU) Regulatory Requirment

Ma Mark rket et Va Valu lue

Multiples/Yield Voting NV

PE 6.09 4.55 PBV 0.42 0.31 Div Yield 6.5% 8.7% Earnings Yield 16.42% 21.98%

Movement Voting NV ASPI

12 Months

• 30%
• 35%
• 11%

2020

• 29%
• 32%
• 14%

Since Aug 5th (election) 9% 5% 2%

500 1,500 2,500 3,500 4,500 5,500 6,500 7,500 50 70 90 110 130 150 170 190 210

Share Prices (Rs)

Voting NV ASPI (R)

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