Hong Leong Bank sees loan growth of around 5% in FY19

This is in line with loan growth expectations for the banking sector, according to its CEO


Hong Leong Bank Bhd (HLB) expects to achieve a loan growth of around 5% for the financial year ending June 30, 2019 (FY19), backed by stronger performances across its key segments of residential mortgages, transport vehicle loans, and loans to small and medium enterprises (SMEs).

Group MD and CEO Domenic Fuda said the FY19 loan expansion would be in line with loan growth expectations for the banking sector, which saw a 5% increase in loans for the period of July 2017 to June this year.

“I think from what we see, 5% should be maintained. Leading indicators from Bank Negara Malaysia (BNM) on submissions and approvals of loans look reasonable, so I think for our FY19, around 5% or maybe a little bit more is doable for the whole industry,” he said at a media briefing on the group’s FY18 results in Kuala Lumpur yesterday.

The targeted growth is higher than that of FY18 — during which the group’s gross loans, advances and financing rose 3.1% year-on-year (YoY) to RM129.1 billion.

“The pipeline for mortgages is quite good, so we expect to see reasonable growth this year. SME loans will see better traction this year — the growth was small in FY18 due to BNM changing the definition of SMEs, so quite a few SME loans had to be moved to corporate,” Fuda said.

He said the group also has a good pipeline of commercial loans, particularly from medium-sized corporates.

On the bank’s transport vehicle loans segment, which fell 4.7% in FY17 and 3.9% in FY18, Fuda said it has budgeted for a “small increase” in the segment owing to solid traction seen in the last two months and before the zero-rating of the Goods and Services Tax, as well as the bank’s efforts to gain market share.

The bank’s residential mortgages grew 7.9% YoY to RM61.37 billion for FY18, while SME loans rose 0.5% YoY to RM20.48 billion.

Transport vehicle loans fell 3.9% YoY to RM16.89 billion, while credit card and personal loans declined 4% YoY to RM5.58 billion.

“We have a couple of partnerships coming up for credit cards. We are aware of the potential impact of the re-introduction of the Sales and Services Tax (SST) on credit cards, so

we’re looking at how best to retain (credit card users), although generally users would have cancelled unused credit cards like five years ago, when SST was first introduced,” Fuda said.

Total deposits climbed 1.4% YoY to RM157.41 billion, underpinned by a 6.3% YoY growth in current account and savings account deposits to RM41.2 billion, plus a 2.3% YoY growth in individual deposits to RM88.16 billion.

Business enterprise loans, however, fell 0.9% YoY to RM62.75 billion, while fixed deposits (FDs) grew 0.3% YoY to RM88.22 billion.

According to Fuda, the muted FD growth was due to the bank’s intention to maintain its liquidity and loan-to-deposit ratio (LDR) of 82%, as loans grew 3.1% during the year.

“If we grew deposits even quicker, our LDR would be at 78%. There’s no point unless you can grow deposits and put them to work.

“We didn’t run as many campaigns (for FDs), there was no need because our rates are five to 10 basis points lower than our competitors.

“So, it’s really a reflection on loan growth, as opposed to not wanting to grow deposits,” he said.

Gross impaired loan ratio stood at 0.87% for the year compared to the previous 0.96%, while cost-to-income ratio improved to 42.6%.

HLB’s net profit jumped 23.1% to RM2.64 billion in FY18 — its highest ever — from RM2.15 billion recorded a year ago, while yearly revenue was 6.4% stronger at RM4.84 billion versus RM4.55 billion last year.

The improved earnings were mainly attributed to strong topline growth, prudent cost management and a 47% YoY increase in share of profits from associates and joint ventures.

The bank has proposed a final single dividend of 32 sen for FY18, subject to shareholder approval at its forthcoming AGM.

For the fourth quarter ended June 30, 2018, the bank’s net profit surged 29.6% to RM626.01 million from RM482.92 million recorded last year, while revenue improved 2.6% to RM1.18 billion from RM1.15 billion registered a year ago.