Hong Leong aims to maintain LDR

KUALA LUMPUR: Hong Leong Bank Bhd, which saw net profit for the second quarter ended Dec 31, 2015 (Q2) fall 37.6% to RM344.08 million from RM551.6 million a year ago, is focusing on maintaining a strong loan-to-deposit ratio (LDR) of 80% to 82% in the financial year ending June 30, 2016 (FY16).
Its newly appointed group managing director and CEO Domenic Fuda expects the bank to post a loan growth of 7%-8% in FY16, from 9.9% in 1H16, to maintain the LDR.
“We expect to grow at least in line with the loan growth to maintain the LDR. If loan growth is a high single digit, we expect deposits will similarly grow,” he told a press conference after announcing its Q2 financial results here yesterday.
The bank is also working on increasing loans from segments with higher returns like SMEs and unsecured personal loans.
Fuda expects the bank’s net interest margin (NIM) to stabilise at the current level of 1.95% as at H116, in the future.
“About 45% of our books are mortgages so as a consequence, we have a lower overall NIM. The encouraging thing is, we’re beginning to see that it’s moderating and slightly on the uptick. We expect that it will stabilise at this level going forward so most of the compression should be behind us,” he explained, adding that there is a lot of competition in the marketplace for both deposits and loans.
Fuda said mortgage is a good anchor product for the bank to cross-sell other banking facilities, as it is a low risk product that allows the bank to build long term relationship with its customers.
The bank remains cautiously optimistic that the outlook of the banking sector will remain resilient despite some moderation in loans and deposit growth. It said asset quality is expected to remain sound, while protection of its business franchise and profitability will continue to be key priorities.
Hong Leong Bank’s Q2 net profit was affected by higher operating expenses, higher charge on allowance for impairment losses on loans, advances and financing, coupled with lower share of profit from an associated company.
This is on the back of a jump in revenue to RM1.07 billion compared with RM1.02 billion in the previous corresponding quarter.
For the six month period, Hong Leong Bank reported 22.9% lower net profit of RM847.04 million compared with RM1.1 billion a year ago. Its revenue also dropped to RM2.1 billion from RM2.04 billion in H115.
Excluding the one-off cost of RM172 million from the mutual separation scheme (MSS) in December 2015, the bank’s business as usual (BAU) net profit would have been RM978 million, underpinned by lower write-backs of loan impairment allowances coupled with lower contribution from associates.
Fuda said last year’s MSS exercise involved 1,070 staff or 12.5% of its total workforce which were largely in branch operations. The release of staff was done in batches and is expected to be completed by June 2016, and bring with it an estimated annualised savings of RM109 million.
Meanwhile, in a separate announcement, Hong Leong Financial Group Bhd (HLFG) said its net profit fell 37.8% to RM263.45 million from RM426.84 million a year ago mainly due to lower contribution from its banking and insurance division.
Revenue, however, jumped 2% to RM1.17 billion compared with RM1.14 billion in the previous corresponding quarter.
For 1H16, HLFG’s net profit decreased 20.3% to RM650.33 million from RM815.99 million a year ago, mainly due to lower contribution from the banking division. Revenue jumped to RM2.31 billion from RM2.23 billion in 1H15.