PETALING JAYA: Hong Leong Bank Bhd (HLB) is for the time being placing its priority on growing organically instead of through mergers and acquisitions.
The fifth-largest bank by asset size’s CEO Domenic Fuda said the bank would, however, not rule out any inorganic opportunities that may crop up should they be attractive and value-accretive.
“We are extremely focused on executing our strategies and growing organically. To this end, however, if there is a right opportunity, we would certainly take a look, but it would have to make a lot of sense in terms of synergies, price,” said Fuda at a press conference when announcing its fourth-quarter results to end-June.
“We must also see if when we come together, that say 1+1 equals to 2½ or something like that.
“I wouldn’t dismiss it, but we certainly are focused on executing our organic strategy so that it gives us better efficiencies and profitability and so on,” he said.
He also ruled out any merger with Alliance Financial Group Bhd at this point in time.
“I put out a news release some weeks back and the answer remains categorically no,” Fuda said.
In its latest fourth-quarter financial results, the bank reported that its net profit fell by 13.5% to RM482.9mil from RM558.5mil a year ago. Revenue was higher, however, by 6.5% to RM1.15bil from RM1.08bil a year ago.
It has declared a final dividend of 30 sen per share against 26 sen in the same period a year ago.
The bank said in its financial statements that the fall in profit was mainly due to higher operating expenses of RM21.4mil, a higher allowance for impairment losses on loans, advances and financing of RM115mil, a lower writeback of impairment losses on financial investments of RM1.3mil, and a lower share of profit from joint ventures of RM1.8mil.
This was, however, mitigated by a higher net income of RM73mil and a higher share of profit from an associated company of RM22mil.
For financial year 2017 (FY17), its net profit rose 13.16% to RM2.15bil, while revenue also increased 8.85% to RM4.55bil.
Moving forward, Fuda is targeting a loan growth of 5%-6% for FY18, with net interest margin at more than 2.1% and the cost-to-income ratio to reduce further to less than 44% from 44.1% (which is also a year-on-year (y-o-y) reduction) in FY17.
“Vehicle loans reduced in FY17, but we expect this to start stabilising this year and it will. We are seeing a little bit of a pick-up in volumes.
“We are also putting a little bit more emphasis on the SMEs and will push this through our branches throughout the country. We will put in resources to go after this opportunity,” Fuda said.
“In the meantime, residential loan and credit card loan growth should continue and based on all these (assessments), we should be able to do 5%-6% in FY18,” he added.
Its loan growth grew 3.8% y-o-y to RM125.1bil, led by its key segments of domestic retail and SMEs, and overseas operations.
The bank said that domestic loans to the retail segment continued to drive its loan growth, expanding some 5.2% y-o-y with residential mortgages growing 10.4% y-o-y ahead of the industry’s loan growth to RM56.9bil.
Automotive loans were, however, lower at RM17.6bil on softer industry growth.
HLB’s net interest income in the fourth quarter rose by 11.6% y-o-y to RM864mil, while the entire year saw it rising by 9.1% y-o-y to RM3.355bil.
For the full year, net interest margin rose 2.09% from 1.94% in the year prior.
Non-interest income for FY17 rose 8.4% y-o-y to RM1.196bil from higher wealth-management fees, dividend income from investments and higher gains from treasury operations.
The loan-to-deposit ratio stood at 80.6%, with customer deposits in FY17 increasing 4.5% y-o-y to RM155.2bil, while current account savings account grew 4.2% y-o-y to RM38.8bil.
On its 20% associate Bank of Chengdu Co Ltd in China, Fuda said that the bank was still applying for a public listing and was in the queue to do so.
“We had said sometime back that we want to do an initial public offering (IPO), but there is a waiting list.
“It will take a while, with the government needing to do an assessment until they think you are ready. Then, they will approve the IPO. “We are still on this waiting list and hope for this to happen in the future. Other than that, we have no other plans (for Bank of Chengdu) other than to work towards this IPO,” he said.