KUALA LUMPUR: The worst is likely over for the local banking sector, according to Hong Leong Bank Bhd, the fifth largest banking group in Malaysia, which reported a 60% rise in net profit yesterday for its second quarter ended Dec 31, 2017 (2QFY17).

“For the banking industry, I expect we will see a better [set] of results this year than we did last year,” said the group’s chief executive officer, Domenic Fuda, after voicing the bank’s optimism that the country’s gross domestic product growth would reach over the 4.5% mark this year.

“Maybe last year it (gross domestic product) was in the midst of bottoming. This year should be stronger, supported by infrastructure spending. The whole commodities sector has strengthened somewhat, [while] oil and gas has picked up from the bottom and so on — all that augurs well for Malaysia,” he said in a briefing after the release of the bank’s 2QFY17 results.

From that point of view, he believes the worst is likely over for the local banking industry. “Overall, we think [the economy] is going to be better. For our own bank, the numbers are quite good [so far]. For our financial year ending in June, I expect the full year of FY17 to be solid,” he added.

The same is true in terms of net interest margin (NIM), he said, after noting that Hong Leong Bank’s NIM for 2QFY17 improved to 2.08%, from 1.96% a year ago, while first half of FY17 (1HFY17) improved to 2.05% from 1.95% in 1HFY16, mainly driven by better loan pricing and cheaper cost of funds.

“So from that point of view, we probably have seen the bottoming of NIM [a year ago],” he said. As such, Hong Leong Bank’s management has revised the bank’s net interest margin target for FY17 to at least 2% from 1.9% originally, he added.

Earlier yesterday, Hong Leong Bank disclosed that its net profit for 2QFY17 grew to RM549.94 million or 26.89 sen per share from RM344.08 million or 19.43 sen per share a year ago, backed by a 10% revenue growth to RM1.18 billion from RM1.07 billion. It recommended a 15 sen dividend per share, payable on March 23.

The group’s customer deposits for 1HFY17 increased by 4.1% to RM150.6 billion from RM144.6 billion a year ago, though the current account savings account (Casa) ratio slid to 25.1% from 25.5%.

“Don’t forget last year there was the OPR (overnight policy rate) cut of 25bps (basis points); we put a lot of emphasis on loan pricing, to make sure we get appropriate risk-based pricing,” said Fuda.

“Our house view is that, there is unlikely to be a further OPR cut this year, and that would help,” he added. Last July, Bank Negara Malaysia cut the OPR rate by 25bps to 3%, which it said was aimed to help the country to remain on a steady growth path.

In terms of cost of funds, Fuda shared that Hong Leong Bank has repriced some maturing fixed deposits, while he said Casa growth remains quite robust. He added that the bank has retired some long-term funding — amounting to some RM2 billion — that had a higher cost of funds.

“We could do cheaper funding through customer deposits, so we replaced some of that as well — that helped,” Fuda said. Still, Fuda thinks there is room for improvement for Hong Leong Bank.

“There is an area that we need to do better, which is loan growth; 4.6% [in 2QFY17] is a little bit lower than the industry, which was about 5.3% [in the same three months],” he said.

“Our residential mortgages and SME (small and medium enterprise) loans are doing well, so we need to figure how to do better in a few other segments, where we can take loan growth to 5% plus, that is an area [that is still a] work in progress,” he said.

Hong Leong Bank’s share price gained four sen or 0.3% to settle at RM13.50 yesterday, giving it a market capitalisation of RM27.70 billion.