[RAM] RAM Ratings assigns P1 rating to Hong Leong Financial Group's proposed RM5 bil Commercial Papers Programme

RAM Ratings has assigned a P1 rating to the senior notes to be issued under Hong Leong Financial Group Berhad’s (HLFG or the Group, rated AA₁/Stable/P1) proposed RM5 bil Commercial Papers Programme (2025/2032). 

HLFG’s commercial banking unit, Hong Leong Bank Berhad (rated AAA/Stable/P1), serves as the main banking subsidiary while Hong Leong Islamic Bank Berhad (rated AAA/Stable/P1) and Hong Leong Investment Bank Berhad (rated AAA/Stable/P1) play strategic roles as its Islamic and investment banking arms, respectively. The Group boasts excellent asset quality and strong domestic banking franchise in the retail and small & medium enterprise markets. 

HLFG’s overall asset quality stayed pristine with an improved gross impaired loan ratio of 0.54% as at end-September 2024 (end-June 2023: 0.57%; industry: 1.54%). The Group’s credit cost was benign in FY Jun 2024 and 1Q FY Jun 2025, with a net writeback of 6 bps and 1 bp (annualised), respectively, owing to strong recoveries. HLFG’s sizeable management overlays remained unchanged at RM574 mil. 

The Group’s relatively stable earnings over the years have been supported by low impairment charges and contained operating costs. Like its peers’, HLFG’s net interest margin was narrower in fiscal 2024 due to intensified deposit competition in 2H 2023, although partially mitigated by above-industry loan growth and a higher share of low-cost funding. Overall profitability was lifted by a net writeback of loan impairment charges and a stronger contribution from associate, Bank of Chengdu Co. Ltd. These factors translated to an improved return on assets and return on risk-weighted assets of 1.8% and 3.5%, respectively, in FY Jun 2024 (FY Jun 2023: 1.7% and 3.3%). 

Adding unaudited net profit from the latest quarter, HLFG’s adjusted common equity tier-1 (CET-1) capital ratio came up to 11.8% as at end-September 2024 (end-June 2023: 11.0%). We anticipate the 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. The Group’s individual banking subsidiaries, however, will maintain the metric above 12%.



 

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