KUALA LUMPUR (Nov 29): Hong Leong Financial Group Bhd's (HLFG) net profit for the first quarter ended Sept 30, 2022 (1QFY2023) grew 6.4% year-on-year (y-o-y), thanks to higher contributions from its commercial banking division, which houses its 64%-owned Hong Leong Bank Bhd.

HLFG, however, said its insurance division HLA Holdings Sdn Bhd and investment banking operation Hong Leong Capital Bhd recorded lower contributions.

Net profit for 1QFY2023 rose to RM681.74 million or 60.10 sen per share, from RM640.56 million or 56.50 sen per share a year ago, HLFG said in a stock exchange filing on Tuesday (Nov 29).

The group’s net interest income grew 6.2% to RM1.01 billion for 1QFY2023, from RM952.72 million for 1QFY2022.

HLFG said earnings for HLA Holdings were affected by higher mark-to-market valuation losses on investments as well as lower share of profit from associates.

As for the investment banking business, the group said its stockbroking operation was weighed by significantly lower Bursa Malaysia market activity in 1QFY2023, while its asset management segment was affected by lower management fee income.

Hong Leong Bank, on the other hand, recorded a 14% growth in net profit to RM981.41 million for 1QFY2023 from RM858.25 million a year ago, while net interest income grew 7.7% to RM989.57 million from RM918.81 million.

The bank’s earnings were driven by stronger interest income, effective cost management, low credit cost and robust contributions from associates.

Its net interest margin improved five basis points y-o-y to 2.18% in 1QFY2023, the bank said in a stock exchange filing.

Allowances for impairment losses on loans, advances and financing also declined 23% to RM37.58 million in 1QFY2023, from RM48.79 million in 1QFY2022.

Hong Leong Bank said profit contributions from Bank of Chengdu improved 22.6% in 1QFY2023 to RM259.9 million, representing 22% of the group’s pre-tax profit.

Gross loans had expanded 8.8% y-o-y to RM169.5 billion as at 1QFY2023, led by expansion in mortgages, small and medium enterprise, commercial banking and overseas operations.

Hong Leong Bank said its asset quality position remained solid, with a gross impaired loan ratio of 0.49% as at 1QFY2023.

HLFG president and chief executive officer Tan Kong Khoon said while the Malaysian economy is expected to remain resilient going forward, the recovery momentum would continue to face multiple macroeconomic and external headwinds ranging from elevated inflationary pressures, the effects of a strong US dollar, and the risk of a global economic recession.

“With many factors at play, we shall be vigilant against these risks, and are cautiously optimistic that the Malaysian economy will remain resilient amid an uncertain and volatile global backdrop,” he said.

Nonetheless, Hong Leong Bank group managing director and CEO Domenic Fuda said the Malaysian economy is still expected to grow 6.5%-7.0% this year, before normalising to 4.0%-5.0% in 2023, supported by domestic demand arising from labour market improvement and ongoing policy support.

However, Fuda warned that spillover effects from protracted inflationary pressures may impinge on real consumption and dampen growth prospects.

“Amid the dynamic business landscape, we are disciplined and focused on our investments and expenditure that allow us to capture opportunities that deliver sustainable outcomes to our stakeholders,” he said.

Shares in Hong Leong Bank, which have gained 15% year-to-date, were trading six sen or 0.3% higher at RM20.90 per share, giving the bank a market capitalisation of RM45.31 billion.

HLFG, meanwhile, was trading 28 sen or 1.5% lower at RM18.84 per share, valuing it at RM21.62 billion. The counter has climbed 11% since the beginning of the year.