Net interest margin bottoming out: Hong Leong Bank

KUALA LUMPUR: Hong Leong Bank Bhd, which posted a net profit of RM549.94 million for the second quarter ended Dec 31, 2016, expects the current financial year ending June 30, 2017 (FY17) to be a reasonable year with its net interest margin (NIM) expected to surpass 2% after experiencing some bottoming in FY16.

Its group managing director and CEO Domenic Fuda said the bank had achieved NIM of 2.05% in the first half of FY17 (1H17). This is ahead of its revised NIM target of over 2% for FY17, from a target of more than 1.9% initially.

“We think we’ll be able to do better than 2% for the full year. We put emphasis around loan pricing by segment and customer type to ensure that we get an appropriate risk-based pricing,” Fuda told a media briefing after announcing its half-year financial results here yesterday.

He added that the bank also retired some long-term funding, which was replaced by shorter-term customer deposits.

“In the middle of last year (Q2-Q3) there was a little bit of bottoming. This year (NIM) should be stronger supported by infrastructure spending, the strengthening of the commodity sector, the picking up of oil and gas ... all of these augur well for Malaysia,” Fuda said, adding that a better gross domestic product growth expected this year and the Overnight Policy Rate cut in July last year helped to boost businesses.

However, Fuda pointed out that the bank needs to improve on its loan growth. Its gross loan growth came in decently at 4.6% in 1H17, underpinned by growth in key segments of domestic retail and SMEs, but still fared lower than the industry’s 5.3%. The bank is targeting a loan growth of 4%-5% for FY17.

“Residential mortgages, SMEs are doing well. We need to figure to do better in a few other segments, where we can take loan growth to 5% plus. That’s an area that is work in progress,” said Fuda.

Its loan growth momentum picked up in the second quarter, supported mainly by domestic loan growth. Loans to the domestic retail segment continue to drive the bank’s loan growth, expanding 6% year-on-year in 1H17 and contributed 70% of the group’s total loans.

Hong Leong Bank’s net profit for the second quarter ended Dec 31, 2016 jumped 60% to RM549.94 million from RM344.08 million a year ago due to higher net income, lower operating expenses and lower charge on allowance for impairment losses on loans, advances and financing.

Revenue rose 9.8% to RM1.18 billion from RM1.07 billion in the previous year’s corresponding quarter.

For the six months period, its net profit increased 29% to RM1.09 billion from RM847.04 million a year ago due to higher net income, lower other operating expenses, lower charge on allowance for impairment losses on loans, advances and financing. Revenue surged 8.5% to RM2.27 billion compared with RM2.10 billion in 1H16. Excluding the staff mutual separation scheme costs, its business-as-usual net profit was RM978 million.