[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 rating affirmations reflect HLFG’s strong domestic franchise in the retail and small & medium enterprise markets, and excellent asset quality. The one-notch differential between HLFG’s long-term CCR and the long-term FIRs of its subsidiaries highlights 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.

Underpinned by a prudent risk management culture, HLFG’s risk profile remains one of the strongest among peers. The Group’s asset quality stayed outstanding, with an improved gross impaired loan ratio of 0.55% as at end-December 2024, compared to 0.57% as at end-June 2023 and the industry average of 1.44%. Reflective of its strong recovery efforts, HLFG’s credit cost was a benign 1 bp in 6M FY Jun 2025. While ongoing trade tensions and an expected economic downturn may weigh on the near-term credit outlook, the Group’s disciplined underwriting and resilience through economic cycles provide comfort. Loan loss coverage remains ample with sizeable management overlays. 

HLFG’s strong profit performance in recent years is attributed to low impairment charges and contained operating costs. This, coupled with a robust profit contribution from its associate, Bank of Chengdu Co. Ltd, led to a record pre-tax profit of RM3.2 bil in 1H FY Jun 2025. The Group’s net interest margin increased by 4 bps to 1.63%, supported by a higher loan-to-deposit of 88% as at end-December 2024. These translated to an improved annualised return on assets and return on risk-weighted assets of 1.9% and 3.6%, respectively, in 1H fiscal 2025 (fiscal 2024: 1.8% and 3.5%). 

After adjusting for proposed dividends, HLFG’s common equity tier-1 (CET-1) capital ratio stood at 11.0% as at end-December 2024. Although this is at the lower end compared to other banking groups, it is still considered sound given the Group’s solid risk profile. Individual banking subsidiaries will maintain the ratios above 12%. HLBB’s adjusted CET-1 capital ratio stayed strong at 13.0% as at end-December 2024.



 

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