HNB recorded a 20.4% increase in standalone profit after tax in the second quarter of 2026, supported by stronger lending income and trading gains despite a return to impairment charges from a reversal recorded a year earlier.
HNB delivers stronger lending income as quarterly profit reaches Rs. 13.19 billion
Hatton National Bank PLC reported quarterly Profit After Tax of Rs. 13.19 billion, compared with Rs. 10.96 billion in the corresponding period of 2025. Earnings per share also increased to Rs. 22.85 from Rs. 18.98, reflecting the stronger earnings performance during the quarter.
The bank’s core lending business was the main driver of the improvement. Net Interest Income rose 29.7% year-on-year to Rs. 28.40 billion, as interest income from loans and advances expanded faster than funding costs.
Interest income increased 21.4% to Rs. 60.82 billion, while interest expenses rose 14.9% to Rs. 32.42 billion. The stronger growth in interest income allowed the bank to expand its net interest income despite continued pressure from the prevailing interest rate environment.
HNB said the first-half improvement in net interest income was supported by strong lending momentum, with higher interest income from loans and advances offsetting increased funding costs. The performance reflects the impact of the bank’s expanding loan portfolio on its core earnings capacity.
Non-interest revenue also contributed to the quarterly performance. Net fee and commission income increased 21.1% to Rs. 6.61 billion. The growth was supported by increased digital banking activity, card transactions and contributions from transaction banking and leasing operations.
Trading income provided another significant boost. The bank recorded a net trading gain of Rs. 3.90 billion during the quarter, compared with a loss of Rs. 271 million in the same period of 2025. This represented a substantial improvement in the bank’s trading performance.
However, net other operating income declined 29.1% to Rs. 1.75 billion. Despite the decline, the increase in net interest income, fee income and trading gains helped lift Total Operating Income by 37.6% to Rs. 40.67 billion.
Credit costs moderated some of the benefit from stronger operating income. The bank recognised an impairment charge of Rs. 1.54 billion during the quarter, compared with an impairment gain of Rs. 4.74 billion in the corresponding period of 2025.
As a result, Net Operating Income increased by a more measured 14.1% to Rs. 39.13 billion. The movement highlights the impact of credit provisioning on reported earnings, particularly against a backdrop of rapid loan growth.
Operating expenses increased 8.7% to Rs. 13.10 billion. Personnel expenses rose 7.5%, while other operating expenses increased 8.6%. The bank said higher foreign currency-denominated technology and payment-processing costs contributed to the increase in expenses during the first half of the year.
Profit Before Income Tax rose 17.6% to Rs. 20.59 billion for the quarter, while income tax expenses increased 12.9% to Rs. 7.40 billion.
At group level, however, the performance was more subdued. Group Profit After Tax increased only 0.8% to Rs. 12.20 billion, while profit attributable to HNB shareholders remained almost unchanged at Rs. 11.77 billion compared with Rs. 11.74 billion a year earlier. Higher insurance-related expenditure and other group-level costs diluted the stronger performance of the banking operation.
The contrast was also visible in the six-month results. Standalone Profit After Tax increased 9.2% to Rs. 23.14 billion, while group profit declined 2.6% to Rs. 22.56 billion. Total comprehensive income at bank level fell 4.6% during the second quarter to Rs. 11.47 billion, partly due to losses recognised on debt and equity investments through other comprehensive income.
The balance sheet expanded significantly during the first six months of 2026. Net loans and advances increased 15.3% from the end of 2025 to Rs. 1.65 trillion, while customer deposits grew 7.1% to Rs. 2.10 trillion. Total assets increased 7.1% to Rs. 2.56 trillion.
The rapid expansion of lending also affected impairment provisions. HNB recorded Rs. 4.09 billion in impairment provisions for the six months, compared with a Rs. 5.12 billion impairment reversal in the corresponding period of the previous year.
Asset quality indicators presented a mixed picture. The gross Stage 3 loan ratio improved to 4.42% from 4.56% at the end of 2025. However, the net Stage 3 ratio increased slightly to 1.17% from 1.09%, while Stage 3 impairment coverage declined to 73.42% from 75.97%.
Profitability indicators showed both improvements and pressure points. The net interest margin increased to 4.40% from 4.26%, while the annualised cost-to-income ratio improved to 34.48% from 37.82%. Return on equity, however, declined to 16.79% from 18.11%.
Capital ratios also weakened as the loan book expanded, although they remained above regulatory minimum requirements. The Tier 1 capital ratio declined to 15.44% from 16.85% at the end of 2025, while the total capital ratio fell to 18.18% from 19.95%.
The latest results place HNB among Sri Lankan banks benefiting from stronger credit demand and improved core interest income. At the same time, the shift from impairment reversals to provisions and the movement in capital ratios underline the need to balance rapid lending growth with prudent risk management.
Overall, the second-quarter performance demonstrates stronger underlying momentum in the bank’s core operations, with lending, fee income and trading gains supporting profitability. The continued expansion of the balance sheet will remain an important factor for investors as HNB navigates credit quality, capital requirements and funding conditions during the remainder of 2026.