[RAM] RAM Ratings affirms ratings of Hong Leong Financial Group and banking entities

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

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Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my