[RAM] RAM Ratings assigns AA1/Stable rating to Hong Leong Investment Bank's proposed Tranche 3 subdebt issuance

RAM Ratings has assigned an AA1/Stable rating to the proposed Tranche 3 issuance under Hong Leong Investment Bank Berhad’s (HLIB or the Bank) RM1.0 billion Multi-Currency Tier-2 Subordinated Notes Programme (the Programme). The Programme is an existing facility that is unrated. For added flexibility, the Bank is finalising revisions to the existing principal terms and conditions to allow for the issuance of rated or unrated ringgit-denominated tranches as well as sustainable bond issuances.

The one-notch differential between the rating of the proposed Tranche 3 issuance and HLIB’s AAA long-term financial institution rating reflects the subordination of the subordinated notes to the Bank’s senior obligations.

As the investment banking and stockbroking arm of Hong Leong Financial Group Berhad (HLFG or the Group, last rated AA1/Stable/P1 on 30 August 2023), HLIB is highly strategic to the Group and benefits from a very strong likelihood of support when needed. The Bank can utilise the well-established customer network of Hong Leong Bank Berhad – the commercial banking subsidiary of HLFG – to capitalise on deal referrals and cross-selling opportunities. 

Like its peers, HLIB’s earnings are dependent on market conditions and investor sentiment. Its pre-tax profit fell 41% to RM43 mil in FY June 2023 (FY June 2022: RM72 mil), primarily due to weaker brokerage income, in line with the lower trading volumes experienced in the local bourse. Earnings were also weighed down by higher operating expenses. Pre-tax profit however climbed 17% y-o-y to RM28 mil in 1H FY Jun 2024 (1H FY Jun 2023: RM24 mil) following stronger trading activities in the industry with the return of more institutional trades. Investment income also fared better in a more stable interest rate environment after rate hikes ceased. 

Two-thirds of the Bank’s financial investments, which make up 74% of total assets, are low-risk government-guaranteed bonds. Gross loans, on the other hand, make up just 7% of total assets and are primarily share margin financing. The credit quality of HLIB’s loan portfolio is pristine with no impairments. 

As at end-December 2023, the Bank’s common equity tier-1 capital ratio was 36.5% (end-June 2022: 35.4%). Its sturdy capital position affords a strong loss absorption buffer against the volatility of its earnings.


Analytical contacts
Johan Faizul 
(603) 3385 2518 
johan@ram.com.my

Wong Yin Ching, CFA 
(603) 3385 2555
yinching@ram.com.my