KUCHING: RAM Ratings has placed Hong Leong Bank Bhd’s (Hong Leong Bank) AA1/P1 financial institution ratings and the ratings of its outstanding debt instruments on a positive outlook.
The bank has exhibited a track record of excellent asset quality throughout credit cycles, a sturdy funding and liquidity profile, a stronger capital position, as well as strong domestic retail and SME business banking franchises.
These metrics are expected to remain solid despite the challenging economic conditions ahead, RAM said.
Hong Leong Bank is the fifth-largest commercial bank in Malaysia by assets, and holds a respectable share of the banking system’s loans and deposits.
The Bank also has established franchises in property lending, vehicle financing and credit cards.
“Underscored by its prudent lending and sound risk management, Hong Leong Bank’s asset quality has consistently remained among the best in the industry; its generally conservative risk appetite is envisaged to continue containing its credit risks,” it said in a statement yesterday.
“While the bank’s sizeable exposure to property financing gives rise to some concern, the credit quality of this portfolio has stayed solid. Notably, the gross impaired-loan ratios of each of its lending segments were better than the corresponding averages of the banking industry as at end-September 2016.”
In fiscal 2016, Hong Leong Bank recorded a pre-tax profit of RM2.4 billion – its reduced earnings are mainly attributable to lower contributions from 20 per cent-owned Bank of Chengdu, and weaker recoveries on the Bank’s impairment provisions.
Excluding a one-off RM172 million expense related to its mutual separation scheme, Hong Leong Bank’s return on risk-weighted assets of 2.1 per cent is still deemed healthy.
Hong Leong Bank’s sturdy funding and liquidity profile is underpinned by its strong retail deposits, which made up over half of its total deposits as at end-September 2016.
The Bank’s low loans-to-deposits ratio of 80.3 per cent allows ample headroom for further financing growth, and is deemed favourable relative to its peers.
Meanwhile, Hong Leong Bank’s fully loaded common-equity tier-1 ratio had improved to 11.8 per cent as at end-September 2016, underpinned by its RM3 billion rights issue in December 2015.
The bank is well poised to withstand the tougher economic landscape ahead given its better capitalisation, robust loan-loss absorption capacity and steady profit performance.