Hong Leong Bank expects loan growth to exceed 5% target

This article first appeared in The Edge Financial Daily, on February 27, 2019.
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KUALA LUMPUR: Hong Leong Bank Bhd (HLB) is optimistic about improving its 5% loan growth target for the current financial year on the country’s robust economic growth.

The bank announced the 5% loan growth target for the year ending June 30, 2019 (FY19) when releasing its FY18 financial results last August. FY18’s loan growth was 3.1%.

“I think the GDP (gross domestic product) growth of 4.7% last year was quite resilient and the activities we saw in the first two months this year would indicate that GDP growth would not be so bad,” said HLB group managing director and chief executive officer Domenic Fuda (pic).

“If the momentum continues, we should do better than 5%,” Fuda told a media briefing yesterday, adding the loan growth will be mainly driven by the retail and business banking segments.

Bank Negara Malaysia, on Feb 14, announced that Malaysia’s economy expanded 4.7% in the fourth quarter (4Q) from a year earlier, up from 4.4% in 3Q. The central bank expects positive growth for the economy moving into 2019, after a GDP growth of 4.7% for both 4Q of 2018 and the entire 2018.

HLB saw a 4.8% gross loan growth for the first half of FY19 (1HFY19), while its net interest margin fell 15 basis points to 1.98% from 2.13% in 1HFY18. The group attributed this to a fall in net interest income to RM1.72 billion, from RM1.78 billion a year earlier, underpinned mainly by a rising funding cost from deposit competition.

The bank’s gross loans, advances and financing grew 4.8% year-on-year in 1HFY19 to RM131.6 billion. Overall, loan growth was predominantly driven by mortgages expanding 8.8% to RM64.3 billion. Domestic loans to business enterprises segments, meanwhile, rose 9.9% to RM38.5 billion.

Fuda told the media briefing, held in conjunction with the release of HLB’s 1HFY19 financial results, that the group posted a 0.61% rise in net profit to RM687.25 million for the second quarter ended Dec 31, 2018 (2QFY19), from RM683.07 million a year earlier. Earnings per share grew to 33.59 sen from 33.39 sen.

Quarterly revenue fell 7.32% to RM1.14 billion from RM1.23 billion, while net interest income dropped 3.57% to RM864 million from RM896 million.

In a filing with Bursa Malaysia, HLB said the decline in net interest income was mitigated by a writeback of allowance for impairment losses on loans, advances and financing of RM68.6 million, lower operating expenses of RM5 million and a higher share of profit from associated companies of RM3.3 million.

For 1HFY19, HLB’s net profit rose 5.5% to RM1.39 billion from RM1.32 billion in 1HFY18. Revenue eased 0.66% to RM2.39 billion from RM2.41 billion a year earlier. HLB declared an interim dividend of 16 sen per share.

Meanwhile, Hong Leong Financial Group Bhd (HLFG) and Hong Leong Capital Bhd also announced their financial results yesterday.

HLFG said its 2Q net profit fell 2.79% to RM481.55 million, from RM495.34 million a year earlier, due to lower contributions across all the operating divisions. Quarterly revenue fell 8.84% to RM1.25 billion from RM1.37 billion.

For 1HFY19, HLFG’s net profit rose 3.86% to RM987.24 million from RM950.6 million a year earlier. Revenue was 0.62% lower at RM2.63 billion versus RM2.64 billion previously.

Hong Leong Capital’s 2QFY19 net profit fell 12.84% to RM18.02 million from RM20.68 million a year earlier. Revenue dropped 5.18% to RM76.85 million from RM81.04 million.

Hong Leong Capital’s 1HFY19 net profit rose 3.25% to RM42.05 million from RM40.73 million a year earlier. Revenue rose 4.13% to RM159.44 million from RM153.12 million.

HLB’s share price rose two sen or 0.09% to RM21.30 yesterday for a market capitalisation of RM43.57 billion. HLFG gained 28 sen or 1.41% to RM20.10, valuing the group at RM23.02 billion. Hong Leong Capital closed unchanged at RM9.60, with a market capitalisation of RM2.37 billion.