Hong Leong Bank eyes 5% to 6% loan growth in FY20

The group’s gross loans, advances and financing expand 6.6% YoY for FY19

by NG MIN SHEN/ pic by HUSSEIN SHAHARUDDIN

HONG Leong Bank Bhd is targeting loan growth of between 5% and 6% for the financial year ending June 30, 2020 (FY20), on expectations of improvements in corporate lending, mega infrastructure projects and foreign direct investments (FDIs) in the country.

Group MD and CEO Domenic Fuda (picture) expects corporate lending to pick up this year, after industry-wide corporate loans growth came in at around 3.3% to 3.4% last year versus industry retail lending growth of about 4.2% to 4.3%.

“I think we’ve got enough in the pipeline to do a little bit better. (With) some of the FDIs coming into the country, infrastructure projects and so on, we’ll see loans having a bigger impact as we move into 2020.

“Even if there’s another Overnight Policy Rate (OPR) cut, the economy’s not going to go into a recession as it’s more of a pre-emptive cut and GDP growth was reasonable at 4.9% in the recent quarter,” he told a media briefing on the group’s latest financial results in Kuala Lumpur yesterday.

The group’s gross loans, advances and financing expanded 6.6% year-on-year (YoY) to RM137.6 billion for FY19, driven by mortgages and business banking, as well as overseas financing.

Residential mortgages rose 9.9% YoY to RM67.4 billion, while transport vehicle loans increased 3.5% YoY to RM17.5 billion. Domestic loans to business enterprises grew 10.5% YoY to RM40.7 billion.

Loans and financing in Cambodia and Vietnam rose 24.1% and 52.3% YoY respectively. Gross impaired loan (GIL) ratio came in at 0.78% for the year.

The bank approved loans to small and medium enterprises (SMEs) worth RM3.7 billion in FY19. It also approved over RM7 billion worth of loans for residential properties valued between RM500,000 and below.

The banking group aims to approve RM5 billion worth of SME loans and disburse more than RM12 billion worth of mortgages this year, after disbursing about RM13 billion in mortgages the year prior, Fuda said.

Customer deposits rose 3.6% YoY to RM163.1 billion in FY19, mostly on growth in business deposits.

Malaysia’s fifth-largest lender by assets recorded a net profit of RM636.45 million in the fourth quarter ended June 30, 2019, up 1.7% YoY from RM626.01 million recorded last year on higher share of profit from associates of RM24.4 million.

Revenue for the quarter was 0.7% weaker at RM1.168 billion compared to RM1.176 billion registered the year prior due partly to the effect of the 25-basis-point (bps) OPR reduction in May 2019.

For FY19, the bank’s net profit rose 0.8% to RM2.66 billion from RM2.64 billion previously, attributed to expansion in loans and strong contribution from associates.

Revenue declined 2.3% YoY to RM4.73 billion as net interest income moderated to RM3.39 billion from RM3.5 billion previously on the back of still-elevated funding cost pressure during the year and the May OPR cut.

Net interest margin (NIM) for the year fell to 1.96% from 2.1% previously. Nevertheless, about 72% of the bank’s deposits portfolio would be repriced within six months of the OPR cut, which will have a positive impact on NIM, Hong Leong Bank CFO Malkit Singh Maan said.

The bank is “50-50” on the possibility of another interest-rate reduction in November this year, after several central banks in the region recently slashed their lending rates.

“If there is another OPR cut in November, that would impact our NIM by about 2-3bps for FY20,” Malkit added.

Non-interest income (NOII) for FY19 stood at RM1.33 billion with a higher NOII ratio of 28.2% versus 27.8% last year, due to higher credit card fees, foreign-exchange gains and gains on the divestment of a joint venture.

Operating expenses rose 1.5% YoY to RM2.09 billion for the year, resulting in a higher cost-to-income ratio of 44.3% versus 42.6% in FY18.

For FY20, the group is targeting NIM of around 2%, cost-to-income ratio of 43% to 43.5%, GIL ratio of under 1% and return on equity (RoE) of 10.5% to 11% (FY19 RoE: 10.8%).

The group has proposed a final dividend of 34 sen per share, bringing the total dividend to 50 sen for FY19.

Shares of Hong Leong Bank closed 1.33% lower at RM16.26 yesterday, valuing the company at RM35.25 billion.