Mr. Rienzie T. Wijetilleke, Chairman of the Hatton National Bank (HNB), a major player in the banking industry with a history going back 120 years, has referred to what he called the country’s "cancerian reputation for corruption" in the company’s just released annual report.

He stressed that the country needed an equitable society where merit is recognized and people are held accountable for their actions, emphasizing that foreign direct investment must play an active role in propagating growth.

Wijetillake called on the professional and business communities as well as civil society and academics to facilitate collective action towards achieving goals that must be met to move forward.

"We must all contribute towards the creation of a corruption free, transparent and well-governed state," he said.

"Once again Sri Lanka as a nation needs to reposition itself as the `haven of peace and harmony,’ a position it proudly held in the past."

HNB CEO, Mr. Rajendra Theagarajah has in his review returned to a previous theme that bigger and stronger banks are essential for the banking sector to truly and actively participate in furthering economic development.

"Thus, consolidation and pooling of capital seems the most appropriate solution whereby the local banking industry is positioned to be competitive," he said, expressing the hope that proposed amendments to the Banking Act will pave the way for consolidation as an avenue of growth in the banking sector.

Earlier the Central Bank did not permit a merger between the Commercial Bank of Ceylon and the DFCC Bank through a share swap arrangement.

HNB has turned in a record group profit of Rs.4.55 billion after-tax in the year ended December 31, 2009 which the bank has described as an impressive 57.8% improvement over 2008 despite a heavy tax toll.

Theagarajah attributed this achievement to a "solid contribution from core banking activities, significant reduction of non-performing advances and commendable returns from the bank’s subsidiaries."

HNB (at the bank level) posted an after-tax profit of Rs.4.35 billion, up 35.2% from a year earlier despite the challenging macro economic climate and contraction in loans and advances during the year, he said.

However, foreign exchange income was down 21.2% while fee and commission income declined 2.3% over 2008.

Theagarajah said that despite challenges, the bank had managed to reduce its non-performing loans (NPL) ratio from 6.73% in 2008 to 6.15% last year as a result of prudent lending policies, aggressive recovery action and recoveries made on account of a loan to Kabool Lanka (Pvt) Limited which had been for long been a negative drag in the bank’s books.

Taxation has continued to be a heavy burden in the financial services and banking industries which Theagarajah said was not conducive to the industry’s vigor and growth, immensely constraining capital accumulation.

HNB had a stated capital of Rs.5.08 billion, a statutory reserve fund of Rs.1.26 billion, retained earnings of Rs.3.85 billion and other reserves of Rs.13.7 billion in its books as at December 31, 2009 while total assets ran at Rs.280.59 billion and total liabilities stood at Rs.256.69 billion.

Deutsche Bank Trust Company Americas with 15% of HNB is its single biggest shareholder although the Stassen group, with CBD Exports (6.53%), Milford Exports (6.53%), Stassen Exports (5.66%) and Distilleries Company (2.53%) collectively is a bigger shareholder.

The EPF has acquired 2.42% of the bank in the year under review while the ETF had more than doubled its shareholding to over a million shares (0.44%) during the year.

The HNB voting share traded at a high of Rs.175 and a low of Rs.68 in 2009 while non-voting share traded at a high of Rs.107 and a low of Rs.32 during the year. This compared with a trading range of Rs.135 to Rs.65 for the voting share and Rs.57.50 to Rs.31 for the non-voting share the previous year.

Net assets per share had grown to Rs.101.37 during the year from Rs.87.29 the previous year.

HNB paid an interim dividend of Rs.1.50 per share last November and has proposed a final dividend of Rs.5 per share to be paid after the AGM in April.