Published on 18 Feb 2022.
RAM Ratings has reaffirmed Hong Leong Financial Group Berhad’s (HLFG or the Group) AA1/Stable/P1 corporate credit ratings (CCRs) and the AAA/Stable/P1 financial institution ratings (FIRs) of its banking entities, Hong Leong Bank Berhad (the Bank), Hong Leong Islamic Bank Berhad (HLISB) and Hong Leong Investment Bank Berhad (HLIB). Concurrently, the ratings of the entities’ sukuk/debt facilities have been reaffirmed (Table 1). The reaffirmation is premised on the Group’s strong domestic retail and SME banking franchises. We expect the Group’s credit metrics to hold up well even after considering a possible decline in asset quality as forbearance measures are gradually withdrawn.
HLFG’s long-term CCR is rated one notch below Hong Leong Bank’s AAA long-term FIR to factor in the Group’s structural subordination as a non-operating holding company and its moderate company-level double leverage and gearing ratios of 1.04 times and 0.04 times, respectively, as at end-June 2021. HLISB’s and HLIB’s ratings have also been reaffirmed given their strategic roles as the Islamic and investment banking arms of the Group, whose ratings are in turn anchored by Hong Leong Bank’s ratings.
Supported by its conservative credit culture, Hong Leong Bank’s asset quality is among the best in the industry. The Bank recorded a low gross impaired loan (GIL) ratio of 0.5% as at end-September 2021 (industry: 1.6%), which stands it in good stead to withstand any asset quality pressure triggered by lingering Covid-19 risks. About 22% of its loans were under repayment reliefs as at end-October 2021 and these reliefs will continue to curb impairments in the near term. Hong Leong Bank has however prudently built up its loan loss provisioning in anticipation of higher credit losses. Credit cost climbed to 42 bps in FY Jun 2021 (FY Jun 2020: 23 bps) owing to an additional RM511 mil management overlay. The Bank’s GIL coverage (including regulatory reserves) was a solid 295% as at end-September 2021.
Despite the heightened credit cost, Hong Leong Bank netted a stronger pre-tax profit of RM3.5 bil in FY Jun 2021 (FY Jun 2020: RM3.0 bil) as a result of healthy lending growth, wider net interest margin and a solid contribution from 18%-owned associate, Bank of Chengdu. Similarly, the return on risk-weighted assets ascended to 2.4% in the same period (FY Jun 2020: 2.2%). Additional modification loss arising from the latest moratorium, three-month interest waiver for loans under relief of eligible borrowers in the bottom 50% income group, and the imposition of Cukai Makmur are some downside risk factors, but the ongoing economic revival will likely sustain loan growth and alleviate credit risk, both of which are expected to bolster the Bank’s pre-tax bottom line in FY Jun 2022 (1Q FY Jun 2022: RM1.0 bil).
By virtue of a strong retail franchise and extensive branch network, the Bank boasts one of the largest proportions of retail deposits in the industry. Deposits from individuals constituted half of Hong Leong Bank’s total deposits as at end-September 2021 (banking system: 38%). Its loans to deposits ratio remained comfortable at 84% on the same date while liquidity coverage ratio also surpassed the regulatory requirement. The Group’s capitalisation and that of its banking subsidiaries are sound relative to their risk profiles, with the Group’s common equity tier-1 capital ratio standing at 11.4% as at end-September 2021.
Hong Leong Financial Group Berhad
Corporate Credit Ratings
RM25 billion Multi-Currency Senior Notes, Tier-2 Subordinated Notes, and Additional Tier-1 Capital Securities Programme (2017/2117)*
RM3 billion Commercial Papers Programme (2017/2025)*
*Combined limit of RM25.0 billion
Hong Leong Bank Berhad
Financial Institution Ratings
RM10 billion Multi-Currency Subordinated Notes Programme (2014/2044)
RM10 billion Multi-Currency Additional Tier-1 Capital Securities Programme (2017/2117) ^
^ Programme has a loss absorption feature linked to a non-viability event of the Bank and HLFG
Hong Leong Islamic Bank Berhad
RM2 billion Multi-Currency Tier-2 Subordinated Sukuk Murabahah and Additional Tier-1 Sukuk Wakalah (2017/2117) ^^
^^ Programme has a loss absorption feature linked to a non-viability event of HLISB, Hong Leong Bank and HLFG
Hong Leong Investment Bank Berhad
Goh Kwan Kheen, Timothy
(603) 3385 2496
Wong Yin Ching, CFA
(603) 3385 2555
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Rating Rationale: Hong Leong Financial Group Berhad
Rating Rationale: Hong Leong Bank Berhad
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Rating Rationale: Hong Leong Investment Bank Berhad
Ratings on Hong Leong Financial Group Berhad