This article first appeared in The Edge Financial Daily on November 28, 2019

KUALA LUMPUR: Hong Leong Bank Bhd (HLB) reported a net profit of RM688.58 million or 33.65 sen per share for the first fiscal quarter ended Sept 30 (1QFY20), a marginal 2.6% decline from RM706.92 million or 34.55 sen per share for the year-ago quarter.

Revenue came in at RM1.22 billion, versus RM1.25 billion for 1QFY19.

In a bourse filing yesterday, the bank attributed its lower profitability to reduced net income of RM33.9 million as well as a smaller share of profits from associated companies of RM1.9 million, mitigated by lower operating expenses of RM2.9 million and a write-back of impairment losses on loans, advances and financing of RM27.7 million.

Net interest income improved by 3.4% year-on-year (y-o-y) to RM882 million, on the back of loan book growth and lower funding costs due to repricing of high cost fixed deposits following a cut to the overnight policy rate (OPR). Consequently, net interest margin (NIM) for 1QFY20 rose five basis points (bps) y-o-y to 2.03%.

Non-interest income was reported at RM334 million, supported by an improvement in fee income but offset by a lower foreign exchange gain and absence of a one-off gain from the divestment of a joint venture in the corresponding quarter last year, giving rise to a non-interest income ratio of 27.4%.

Operating expenses contracted by 0.6% y-o-y to RM522 million on digitisation efforts and strategic cost management initiatives.

HLB group managing director cum chief executive officer Domenic Fuda described the start as positive for its new financial year ending June 30, 2020, although the banking sector remains challenging amidst the ongoing external headwinds and soft consumer sentiment.

“Excluding a one-off gain from the divestment of joint venture of RM72 million recorded in the corresponding quarter last year, net profit for 1QFY20 would have expanded by an encouraging 8.5% y-o-y.”

Fuda said business momentum continued its growth traction with gross loans and financing expanding 6.8% y-o-y despite a relatively softer business environment during the quarter.

“Asset quality remained uncompromised, as the gross impaired loan (GIL) ratio was solid at 0.81%. We remain confident that with our strategic priorities in place, we should continue to see further operational improvements and business growth going forward.”

HLB said growing the corporate and small and medium enterprise (SME) portfolio remains its priority going forward, and has committed RM500 million in financing to support projects, specifically on renewable energy for corporate and SME customers, with solar, biogas and small hydropower as key focus areas.

“The demand has been positive, as the bank (HLB) has approved close to RM300 million in financing thus far and is expected to exceed the RM500 million target by the end of this financial year, two years ahead of schedule.

The bank also continues to leverage on digital technology to enable its business customers to effectively manage their operations with the introduction of the first corporate eToken in Malaysia with biometric recognition.