KUALA LUMPUR: Hong Leong Bank Bhd (HLBB) will maintain its growth strategies and will continue to strengthen its domestic franchise and regional niche business this year amid a challenging operating environment, said chief executive officer Tan Kong Khoon.

“For the banking industry, intensifying competition for market share and liquidity in an increasingly regulated business environment will continue to put pressure on banks’ margin,” he told a news conference to announce the bank’s 2015 half-year financial results yesterday.

HLBB (fundamental: 2.8; valuation: 2.2) presented “a set of resilient” results for the six months ended December 2014 (1HFY15), posting a net profit growth of 3.2% to RM1.1 billion from RM1.06 billion a year ago, despite moderating business activities, consumer sentiment and credit growth. This came on the back of lower revenue at RM2.04 billion, a 2.2% decrease from the RM2.08 billion achieved a year ago.

For the second quarter ended December (2QFY15), HLBB saw a 6% improvement in net profit to RM551.6 million from RM520.29 million a year ago. During the quarter, revenue stood at RM1.02 billion, falling 3% short of RM1.05 billion seen in 2QFY14.

With these results, HLBB’s board recommended an interim dividend of 15 sen per share for 1HFY15, payable on March 26.

Tan attributed the bank’s “positive results” in 1HFY15 to healthy growth in net interest income, improved asset quality and strong profit contribution from associates.

Despite the intense competition among banks for loans and deposits, HLBB registered 8.1% growth in net interest income to RM1.63 billion. Its net interest margin for 1HFY15 was 2.06%, two basis points better year-on-year (y-o-y). The bank also saw “robust loan growth” at 6.7% for 1HFY15 to RM107.3 billion. This is significantly better than the muted 0.7% loan growth in 1QFY15, but still fell short of the group’s target of 9%.

“Retail segment remained the key driver of loan growth, expanded by 9.3% y-o-y or 2.5% quarter-on-quarter (q-o-q). The core segment of residential mortgages soared to RM42 billion, up a robust 15.1% y-o-y and above industry growth,” said Tan.

“Transport vehicle loans gathered momentum with a slight growth of around 1% both on y-o-y and q-o-q basis, to RM17.6 billion,” he added.

Tan also noted that HLBB’s asset quality has outperformed the industry. Its gross impaired loans (GIL) balance has been reduced by 21.6% in 1HFY15. The GIL ratio also fell to a record low of 0.98% in 2QFY15.

HLBB’s loan impairment coverage is among the highest in Malaysia’s banking system, at 129.7%

HLBB’s international operations contributed 14.1% of the group’s pre-tax profit in 1HFY15. In particular, Bank of Chengdu’s contribution to the group increased by 6.7% to RM183.8 million during the period. This means that the Chinese bank contributes 13% of the group’s pre-tax profit. For its Islamic banking business, Hong Leong Islamic Bank saw net profit grow 9.1% to RM114 million in 1HFY15. For 2QFY15, the division’s net profit was up 28.3% to RM52 million.

Tan said HLBB’s loan-to-deposit ratio for 1HFY15 is “on target” at 81.3%, among the lowest in the industry. Its customer deposits expanded 4.9% y-o-y to RM132 billion, while its current account, savings account mix was 25.8%.

This article first appeared in The Edge Financial Daily, on February 26, 2015.