Fitch upgrades HNB’s national rating to ‘AA-(lka)’

RATING: Fitch Ratings Lanka has upgraded Hatton National Bank’s (HNB) National Long-term rating to ‘AA-(lka)’ (AA minus (lka)) from ‘A+(lka)’.

At the same time, the agency has upgraded the National rating of HNB’s subordinated debentures to ‘A+(lka)’ from ‘A(lka)’. Subsequently, the rating outlook is revised to stable from positive.

The upgrade of HNB’s National Long-Term rating recognises its continuing trajectory of improving profitability, capital formation and better asset quality.

Shifting of the portfolio mix to higher yielding segments such as pawnbroking, leasing, and loans to mid-sized corporates saw the bank’s net interest margins increasing to 5.0% in FY06 (4.5% in FY05).

As such, overall profitability, as measured by return on assets (ROA), stood at 1.2% in FY06 (1.1% in FY05) and compared well with its peers.

HNB’s asset quality trends continued to improve backed by better monitoring and concerted recoveries.

The non-performing loans (NPLs)/gross loans ratio was 7.1% at FYE06 (8.4% at FYE05), with specific loan loss reserves covering 73.8% of NPLs at FYE06 (65.8% at FYE05).

In addition, HNB’s solvency ratio, as measured by the net NPL/equity ratio improved further to 19.1% at FYE06 (28.6% at FYE05).