KUALA LUMPUR: Hong Leong Bank Bhd (HLBB) is lowering its loan growth target, citing the need to be selective and prudent amid a tough operating environment.
The bank’s earnings grew by almost a quarter in the three months ended Dec 31, 2017 to RM683mil on strong income growth, stable margins, cost control and recovery from associates’ contributions.
“It used to be a 4%-5% loan growth target and we are cutting it to 3%-4% for the entire year,” group managing director and chief executive officer Domenic Fuda told a press conference announcing HLBB’s first-half results here yesterday.
“The whole industry is slowing. Also we emphasise on good-quality loan growth.
“Towards the end of last year, there were a couple of large corporate loans that were being paid as well – this is quite a sizeable portfolio for us,” he said.
Its loan growth in the first half of FY18 came in at a 1.8% year-on-year (y-o-y).
The automotive loan portfolio weighed on its portfolio at RM17.3bil but the mortgage segment posted a healthy growth of 9% y-o-y to RM59.1bil, chief financial officer Foong Pik Yee said.
“The drop in the automotive loan portfolio was due to lower vehicle sales as well as the bank’s decision to compete selectively amid the ongoing price competition. Total unsecured lending (credit cards and personal loans) was also lower to RM5.7bil.
“The small and medium enterprise (SME) segment registered a growth of 3.1% y-o-y to RM20.8bil. Domestic loans (Malaysia) represented 95% of our total loans,” Foong said.
“It was a very stable quarter with no significant stresses on our credit portfolio,” she added.
Fuda said that there might be a pick-up in loan growth in the months ahead.
“The overall vehicle sales were slightly lower than the previous year, consequently the loan portfolio for this shrunk. But I do expect a pick-up in the next six months, as there are a couple of things in the pipeline,” Fuda said.
“In the stock of housing loans that we have, there has been a pick-up over the past six months. We have seen a little pick-up in vehicles and a little bit better traction in the SME portfolio. We have 150 branches that have dedicated SME lending,” Fuda added.
Despite moderating loan growth, HLBB posted an increase in net interest margin at 2.13% for the first-half and second quarter of FY18, which represented an increase of eight basis points (bps) y-o-y and five bps y-o-y, respectively, on prudent pricing and funding cost management.
HLBB said in a statement that net interest income for the second quarter rose for a seventh consecutive quarter on the back of a 7.6% y-o-y growth to RM896mil.Consequently, for the first-half, net interest income was 9% higher at RM1.782bil compared with the corresponding period last year.
Fuda noted that the effects from the rise in interest rates to banks would be temporary because rates on deposits would go up eventually.
“Some 75% of our portfolio is based on the (variable) base lending rate that would depend on the interest rate,” he said.
HLBB reported that its second-quarter net profit rose by 24.2% to RM683mil from the same quarter a year ago due to solid income growth, stable margins, cost control and recovery from associates’ contributions.
Quarterly revenue rose by 4.24% to RM1.229bil.
Current account savings account (CASA), which provides the bank a lower cost of funds, grew 9.3% y-o-y giving rise to a CASA mix of 27% on strong deposit growth.
The board has declared a higher dividend of 16 sen per share this year compared with 15 sen per share last year.