Hong Leong Bank group managing director and CEO Kevin Lam
KUALA LUMPUR: Hong Leong Bank Bhd
continues to maintain a conservative loan growth target despite its positive projection on the outlook of the domestic economy.
Group managing director and chief executive officer Kevin Lam projected for the gross domestic product (GDP) to come in at the upper range of between 4% and 5% with “every possibility of exceeding 5%” this year.
Lam also expects an increase in big-ticket item purchases like housing and motor vehicles as salary increases pick up in the second half this year to early next year.
Nevertheless, the bank remains conservative on its gross loan growth target for the financial year 2025 (FY25) at 6% to 7% (a target the group has kept for the past three to four years), after expanding by 7.3% year-on-year (y-o-y) to RM194.9bil in FY24.
“Industry loan growth has always trended between 4% and 5%. Recently, it has picked up quite strongly to over 6% and Hong Leong Bank always wants to anticipate the curve.
“We often say that bad loans are written in good times. We are entering into a period where everybody thinks things are looking good, which makes us all the more a little bit cautious during this period.
“I think what is important for our financial performance is to look at non-interest income or advisory income and current account savings account (CASA), which has minimal credit risk. This will make our returns more sustainable.
“Hence, for loan growth, if the situation continues, we will likely have a good chance to surpass it like we have surpassed it the last few years,” he said during the media briefing on its full-year financial results for FY24.
On the whole, Lam said the company achieved record-breaking profits for its FY24 ended June 30, 2024, with profit after tax having expanded by nearly 10% y-o-y in FY24, supported by strong loan or financing growth, improved asset quality metrics and healthy contributions from its associates.
“Our performance was underpinned by solid loan and financing growth, particularly in our selected area of small and medium enterprise segment (SME). Our SME loan growth grew 13.6% y-o-y in FY24.
“We also registered a growth of 40.1% y-o-y for our wealth management fee income segment. Credit card-related fee income also increased by 28.7% y-o-y, while transport vehicle financing rose by more than 12% y-o-y. Moreover, the global markets franchise sales income was up by 10.5% y-o-y,” he said.
Malaysia’s fifth-largest bank by assets, the group continues to maintain industry-leading asset quality position, as evident by its gross impaired loan (GIL) ratio, which improved to 0.53% in FY24 compared to the industry’s level at 1.59%.
“We remain prudent and kept the pre-emptive buffer of RM574mil leading to our loan impairment coverage (LIC) sufficiently standing at 155%.
“Inclusive of the value of securities held on our GIL, the bank’s LIC ratio is sufficiently at 225%.
“Accordingly, the net and gross credit charge for FY24 were at minus six basis points, which is a recovery, and eight basis points, respectively,” said Lam.
When asked whether the group will have positive writebacks for FY25, given its current industry-leading GIL average, Lam said the important point regarding financial provisions and writeback is that the bank’s forward-looking overlays remain intact.
“As far as the management overlays are concerned, we have RM574mil in terms of management overlays provisions that remain intact. In FY25, we would be looking at remodeling these management overlays into more specific models as we move along the new financial year.
“There could be some release, but I do not expect it to be major to that extent for those overlays that we have. On the writebacks that you see in the last financial year, that mainly comes from better collection management, as well as bad debts recovered.
“We have a commendable team that we have in the collection side that managed to bring in these kinds of results,” he said.
Meanwhile, Lam said the numbers on SME green financing has been increasingly encouraging, and awareness has “picked up a lot” among its SME customers, particularly in the last one year or so.
“Hence, we believe that the green financing for SMEs, especially in the area of solar panels, is something that is very favourable in Malaysia.
“We are now ahead of our target for green financing.
“Excluding the criteria of energy efficient vehicles for FY24, we cumulatively approved financing of RM3.5bil. Solar (RM2.6bil), biogas (RM467mil), biomass (RM65mil), small hydro (RM297mil) and others (RM129mil).
“For green vehicles, we have financed a total outstanding of RM1.2bil. Moreover, green and affordable mortgages that are currently outstanding stand at RM14.6bil,” he said.
