KUALA LUMPUR (Aug 28): Hong Leong Bank Bhd (HLB), which recorded a loan growth of 6.6% in its financial year ended June 30, 2019 (FY19), is targeting a slightly lower loan growth of between 5% and 6% for FY20, as it expects the country's growth to remain robust following a stronger-than-expected 4.9% gross domestic product increase recorded in the second quarter of the year.
The loan growth target will continue to be driven by loans from small and medium enterprises (SMEs), and mortgages, according to HLB group managing director and chief executive officer Domenic Fuda at a media briefing on the group's fourth quarter and full year FY19 results today.
"I expect a pick-up in the corporate lending space this year and the [banking] industry will be back to grow 5%, [from 4.2% to 4.3% last year]," said Fuda, adding the bank is looking to disburse RM5 billion worth of loans to SMEs this year, and to record slightly over RM12 billion worth of mortgage loans.
Malaysia's growth will stay solid, said Fuda, on the back of more foreign direct investments and mega infrastructure projects in the pipeline. Likewise, the banking industry's growth should reflect that, he said.
Other key performance indicators the bank has set for FY20 are: a net interest margin or NIM of around 2%, a gross impaired loan ratio or GIL of below 1%, and a return-on-equity (ROE) of around 10.5% to 11%.
In contrast, the bank achieved a NIM of 1.96% in FY19 — below the 2% it had targeted for that year — while GIL ratio hit a record low of 0.78%, versus the bank's below-1% target, and ROE came in at 10.8%, 20 bps shy of the 11% it had aimed for.
The bank's KPIs for FY20 were set without taking into account the possibility of any further overnight policy rate (OPR) cut, Fuda noted.
Having said that, he acknowledged there has been a lot of talk that another round of OPR cut is on the horizon after Bank Negara Malaysia trimmed it by 25 basis points to 3% in May. HLB, Fuda said, is of the view that there is a 50-50 chance another cut could materialise in as soon as November.
"I believe that OPR cut in Malaysia will be more as a pre-emptive measure to ensure that Malaysia continues to have a reasonable GDP growth, rather than a recession," said Fuda.
He said whether Bank Negara decides on another rate cut depends on what the rest of the world does, in particular if the US Federal Reserve decides to lower its rates.
Should there be another cut, the expected impact to HLB's NIM is around 2-3 basis points for FY20, said chief financial officer Malkit Singh Maan, adding the impact to the bank's net profit would be similar.
Nonetheless, he said the bank has been very proactive in taking steps to mitigate the potential risks.
He further pointed to the May OPR cut's impact on the bank's NIM, saying NIM will be catching up in the six months after that, as about 70% of deposits will be repriced. Thus, barring another further OPR cut, he said an improvement in NIM by around 5 to 7 bps is expected from where it is now.
As for deposits, he said the intense competition is easing as most banks would have already complied with the requirements of the Net Stable Funding Ratio or NSFR in short, by now.
NSFR, a key liquidity measure under Basel III rules that lenders worldwide have to adopt, requires banks to prioritise long-term stable funding. Banks will be required to have a minimum NSFR — the ratio of their available stable funding to their required stable funding — of 100% on an ongoing basis. According to Bank Negara's website, the NSFR will take effect from July 1, 2020.
At 5pm, HLB shares closed 22 sen or 1.33% lower at RM16.26, valuing the bank at RM35.25 billion. Year to date, the counter has retreated 19.7% from RM20.25.