Sri Lanka’s Hatton National Bank expects 12-14-pct credit growth in 2020

CREDIT HOPES: Sri Lanka’s private credit growth is forecasted to pick up to 14 percent by First Capital, an investment house based in Colombo.

ECONOMYEXT – Sri Lanka’s Hatton National Bank is expecting 12-14 percent loan growth in 2020 as the banking system recovers from a credit slowdown and economic growth is expected to accelerate, Chief Operating Officer Dilshan Rodrigo said.

In the 9-months to September 2019 HNB’s loans and advances contracted 4 percent to 749 billion rupees as Sri Lanka recovered from a currency collapse in 2018.

Hatton National Bank is Sri Lanka’s second largest private bank by assets. Group assets totaled 1,161 billion by September.

Interest rates have also fallen in 2019, as private credit slowed.

HNB’s profits are also expected to improve on the back of a corporate income tax from 28 percent to 24 percent, lifting of a so-called debt repayment levy.

A determination by Sri Lanka’s revenue office that government dollar securities styled Sri Lanka Development Bond would again be tax free would also help the bank from 2019 onwards.

Group profits were down 34 percent to 8.4 billion rupees in the nine months to September 2019.

Sri Lanka’s banks are now trading at earnings multiples that are at 10-year lows, equity researchers at First Capital, a Colombo-based investment house said.

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First Capital is forecasting private credit to grow 14 percent in 2020. In 2019, private credit slowed to 4.5 percent according to central bank data.

Rodrigo said a government debt moratorium for distressed customers and also performing customer who asked for it which was devised in consultation with the industry was ‘sensible’.

The moratorium may involve about 5 to 10 percent of the loan book, including a moratorium already given to tourism sector customers after Easter Sunday attacks, Rodrigo said.

Bad loans in Sri Lanka’s banking sector have edged towards 5 percent and 9 percent in non-banks after the most recent currency collapse.

However higher levels of bad loans have been seen in the wake of earlier currency crises.

Sri Lanka has suffered almost continuous monetary instability from 2015 through two currency crises, triggering output shocks and a spike in bad loans toward 5 percent.

Sri Lanka cut rates and injected liquidity from April 2018, amid a pick-up in private credit, triggering monetary instability and capital flight, though the budget deficit was under control. Rates were later raised to correct instability, triggering an output shock.

In 2020, Sri Lanka’s budget deficit is expected to expand to 7.5 percent after tax cuts, amid a private sector credit pick up.

In January the central bank cut rates, despite the expected spike in the deficit, though data showed that both deposit rates and gilts yields had turned around and inflation also was moving up.

Sri Lanka’s economic growth is expected to pick-up to 3.7-4.0 percent in 2020 from 2.6 percent levels in 2019. (Colombo/Feb19/2020 – Update II)

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