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RAM Ratings affirms ratings of Hong Leong Financial Group and banking entities
Published on 28 Jun 2024.
RAM Ratings has affirmed 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 (HLBB), Hong Leong Islamic Bank Berhad (HLISB) and Hong Leong Investment Bank Berhad (HLIB). The issue ratings of the entities have concurrently been affirmed (Table 1).
The affirmation of the ratings is premised on HLFG’s strong domestic franchise in the retail and small & medium enterprise markets and the Group’s excellent asset quality. The one-notch differential between HLFG’s long-term CCR and the long-term FIRs of its subsidiaries is indicative of the Group’s structural subordination as a non-operating holding company. HLBB is the Group’s main banking subsidiary while HLISB and HLIB play strategic roles as its Islamic and investment banking arms, a key consideration in their ratings.
HLFG’s asset quality stayed pristine with an unchanged gross impaired loan ratio of 0.57% as at end-March 2024 (end-June 2023: 0.57%; industry: 1.62%). With the expected rollout of fuel subsidy rationalisation, management aims to prioritise collection efforts to mitigate against potential credit slippage. Credit cost was benign in 9M FY Jun 2024, with a net writeback of 6bps, owing to stronger recoveries. The Group’s sizeable management overlays remained unchanged at RM574mil.
HLFG’s relatively stable earnings over the years have been supported by low impairment charges and contained operating costs. Its net interest margin narrowed to 1.59% in 9M fiscal 2024 (fiscal 2023: 1.66%), compressed by an increased funding cost. However, overall profitability was lifted by a net writeback of loan impairment charges and a stronger contribution from associate, Bank of Chengdu Co. Ltd (BoCD). These translated to an improved annualised return on assets and return on risk weighted assets of 1.8% and 3.5%, respectively, in 9M FY Jun 2024 (FY Jun 2023: 1.7% and 3.2%).
Adding unaudited net profit from the latest quarter, HLFG’s adjusted common equity tier-1 (CET-1) capital ratio came up to 11.0% as at end-March 2024 (end-June 2023: 11.0%). We anticipate the Group’s CET-1 capital ratio to remain at sub-12% in the near term, at the lower end of the spectrum relative to other banking groups. Individual banking subsidiaries, however, will maintain the ratios above 12%. HLBB’s adjusted CET-1 capital ratio stayed strong at 13.1% as at end-March 2024.
Analytical contacts
Sean Lim, CFA
(603) 3385 2550
sean@ram.com.my
Johan Faizul
(603) 3385 2518
johan@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2024 by RAM Rating Services Berhad
Rating Rationale: Hong Leong Financial Group Berhad
Rating Rationale: Hong Leong Bank Berhad
Rating Rationale: Hong Leong Islamic Bank Berhad
