Inv Investor Updat estor Update 1 e 1H 2020 H 2020
Fin Financia ancial l Hig Highlig hlights hts 1H 1H 202 2020 0
Net Ne t Ope Opera rati ting Inc Income e - Grou roup p 1H 20 1H 19 Growth (Rs Bn) (Rs Bn) % Interest Income 58.5 63.6 8% Interest Expenses (32.7) (34.4) 5% NII 25.9 29.2 11% Net Fee Income 3.7 4.9 26% Net Insurance 3.9 3.9 1% Premium Other Income 2.2 0.02 10690% (7.0) Impairment (9.3) 32% Net Operating 26.1 31.0 16% Income
Ex Expe penses es & & Profits Profits - Grou roup p 1H 20 1H 19 Growth (Rs Bn) (Rs Bn) % Operating 6% (17.1) (18.1) Expenses 54% (4.0) VAT, NBT & DRL (1.9) 18% PBT 9.0 7.4 Income Tax 50% (1.9) (3.8) 7% PAT 5.5 5.1 Profit Attributable 5% 5.2 4.9 to Shareholders
Ne Net t Ope Opera rati ting Inc Income e - Ba Bank 1H 20 1H 19 Growth (Rs Bn) (Rs Bn) % 9% Interest Income 59.0 53.8 Interest Expenses (33.1) (31.4) 5% NII 22.4 25.9 13% Net Fee Income 3.5 4.4 22% Other Income 2.0 (0.1) 2001% Impairment (9.1) (6.3) 45% Net Operating 18.8 24.0 22% Income
Expe Ex penses es & & Profits Profits - Ba Bank 1H 20 1H 19 Growth (Rs Bn) (Rs Bn) % Operating 6% (11.2) (11.9) Expenses 55% (3.8) VAT, NBT & DRL (1.7) 29% PBT 8.3 5.9 Income Tax 60% (1.4) (3.5) 7% PAT 4.5 4.8
Mo Movem vemen ent in in Gr Grou oup p Profit Profit At Attribu ributable able to o Shar Shareh eholder olders Rs Bn 6.0 (52%) +48% +5% (11%) 5.0 4.0 3.0 +10% +32% 5.17 4.92 2.0 (6%) 1.0 - 1H 19 Group PAS NII Other Income Impairment OpEx Taxes Minority 1H 20 PAS
DuPo DuPont t Analysis lysis – Grou roup p NII 4.24% (4.93%) ROA 0.90% (0.87%) ROE Other income 7.00% (6.99%) 1.60% (1.50%) Minority Interest Impairment 0.05% (0.04%) 1.52% (1.19%) Leverage Operating Costs Multiplier 2.80% (3.06%) 8.26x (8.41x) Taxation 0.62% (1.32%) 1H 20 1H 19
Mark Ma rket et Rates tes & NIMs NIMs Market Rates Pvt Credit (Rs Bn) 13.0% 6,000 12% 12.0% AWPLR 5,800 11% 11.0% T Bill 5,600 10% 10.0% AWFDR 5,400 9% 9.0% 5,200 8.0% 5,000 8% 4,800 7.0% 7% 4,600 6.0% 6% Private Credit 4,400 5.0% 5% 4,200 YoY Growth (R) 4.0% 4,000 4% Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 2020 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 NIM 5.71% 5.61% 6.0% 5.39% 5.38% 5.29% 5.28% 5.18% 4.91% 4.87% 4.80% Market rates drop steeply amid monetary 4.68% 5.0% 4.26% loosening 4.0% No commensurate pick up in credit due to 3.0% uncertainty Leads to 100 bps YoY drop in HNB NIM’s at 2.0% Bank & Group level 1.0% Bank 0.0% 2016 2017 2018 2019 1H 19 1H 20 Group
Non Non Fund nd Inc Income COVID 19 - total embargo on non essential imports, Exports down, Lower Credit Card usage, etc. Composition of Non Fund Income Restrictions on charging fees by CBSL – Cheque Returns, Late Payments on Credit Cards, etc. till 30 th Loans&Deposits Others Cards Sept 2020 8% 10% 12% Guarantees Affects Fee & Commission income significantly – 5% down 22.2% YoY to Rs 3.5 Bn at Bank level Insurance Premium Trade&Remittanc Exchange Gains 41% e However May/June witness fee income levels 16% 8% 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 Month wise Fee & Commission (Rs Mn) 900 Digital Initiatives 800 700 HNB SOLO, AppiGo, HNB MOMO, etc. boost fees 600 from Digital Channels 500 400 Increased usage of IPG services 300 200 2020 Increased uptake among merchants for SOLO, 100 2019 AppiGo - Jan Feb Mar Apr May June
Asset Qu et Quality lity Gross NPA Balance between assistance to clientele/economy and asset Surge in FY 19 due to a SOE facility being 8.0% quality as well as sustainable business under scenario of classified as NPA despite treasury guarantee increased credit risk faced by sector – 40% of loan book under 7.0% 6.40% moratoriums 6.0% 5.91% 5.90% Set up of Special Asset Management Unit to proactively assist HNB 5.0% struggling clients COMB Comprehensive revision of Credit Policy during COVID 4.0% NPA up 50 bps in 1H Sampath 3.0% Slightly increasing trend in Consumption related NPA 2.0% 1.0% 2016 2017 2018 2019 Q1 20 Q2 20 Sector Wise NPA Sector Wise Loans Agriculture, Others Agriculture, Wholesale & 2% Forestry & Forestry & Others Retail Trade Fishing Fishing 9% 18% Wholesale & Construction & 6% 9% Retail Trade Infra Dev Tourism 18% 16% 4% Consumption Manufacturing 12% 12% Tourism 6% Health Care, Social & Construction & Infra Dev Support Financial Health Care, 40% Services Manufacturing Services Financial Social & Support 5% 11% 8% Consumption Services Services 7% 3% 14%
TOI TO I & & Ope Opera rati ting Costs ts Oper Op erat ating g Expen penses ses (R (Rs s Bn) 40 Bank TOI & OpEx down Concerted effort to reduce OpEx to mitigate 35 7.7% YoY and 6% YoY COVID impact respectively 30 Outsourcing and supplier agreements revised 25 20 Bank Discretionary budgets revised – Temporary curtailing of advertising, promotions etc. 18 Group 15 17 10 12 Suspension of intern / outsourced staff 11 contracts until the business growth improves 5 2016 2017 2018 2019 1H 19 1H 20 We however pursued critical IT investments such as New Core Banking, BI Visualization, LOS, etc. Core Banking was successfully rolled Cost to Income out in August 60% Cost to Income unchanged from FY 2019 at 48% 48% 50% Bank and Group level 40% 40% 40% 30% 20% Bank 10% Group 0% 2016 2017 2018 2019 1H 20
Ta Taxes es Bank Group 47.6% 50.0% 47.1% 50.0% 46.8% 42.3% 45.0% 45.0% 42.2% 42.1% 41.0% 41.1% 39.7% 39.2% 40.0% 40.0% 32.4% 35.0% 35.0% 30.4% 29.8% 27.7% 27.5% 30.0% 30.0% 26.4% 25.9% 25.3% 24.0% 23.8% 25.0% 25.0% Total Effective Tax 20.0% 20.0% Total Effective Tax Rate Rate 15.0% 15.0% Effective Income Tax Effective Income Tax 2016 2017 2018 2019 1H 20 2016 2017 2018 2019 1H 20 Rate Rate 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.
Len ending ng & & De Depo posits ts Deposit Mix (Rs Bn) Deposits Grow 6.8% in 6 months CASA up 12.1% since 2019 Loans & Deposits (Rs Bn) Gross Loans 100% 900 remain flat 90% 865 80% 800 810 70% 63.1% 64.8% 772 773 700 60% Gross Loans Term 50% 600 Deposits 40% CASA 500 30% 20% 36.9% 35.2% 400 10% 0% 300 2019 1H 2020 2016 2017 2018 2019 1H 20 Loan Mix Loan growth mirrors decline in Private Credit as borrowers defer capital investments, seek working capital funds Healthy mix maintained in loan book 5% 22% 43% Corporate Impressive CASA growth of Rs 34 Bn during tumultuous 1H. SME & Micro Retail CASA ratio up 170 bps in 6 months to 36.9% 30% Mid Market Facilities totalling over Rs 11.5 Bn approved under the CBSL relief scheme at present
Capi pita tal l & & Liquid quidity ty Liquidity (SLAR) Capital Adequacy 40.0% 20.0% 19.1% 35.0% 18.0% 32.9% 16.0% 15.3% 30.0% 14.0% 12.5% 12.0% HNB Tier I 25.0% 10.0% 8.5% HNB Total CAR 8.0% 20.0% HNB (DBU) 6.0% Reg Min - Tier I 4.0% 15.0% Reg Min - Total 2.0% CAR Regulatory 0.0% 10.0% Requirment 2016 2017 2018 2019 1H 20 2016 2017 2018 2019 1H 20 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
Ma Mark rket et Va Valu lue Share Prices (Rs) Multiples/Yield Voting NV 210 7,500 PE 6.09 4.55 190 6,500 PBV 0.42 0.31 170 5,500 Div Yield 6.5% 8.7% 150 Earnings Yield 4,500 16.42% 21.98% 130 3,500 110 2,500 90 1,500 Movement Voting NV ASPI 70 50 500 12 Months -30% -35% -11% 2020 -29% -32% -14% Since Aug 5 th (election) 9% 5% 2% Voting NV ASPI (R)
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