PETALING JAYA: Hong Leong Bank Bhd
(HLB) is guiding for a return on equity (ROE) of 12% for financial year 2025 ended June 30, 2025 (FY25) versus 11.8% in FY24.
TA Research stated the bank’s management expects loan growth to remain healthy at about 6% to 7% for FY25, supported by continued demand across retail and small and medium enterprise (SME) segments.
Net interest margin (NIM) is projected to improve to between 1.85% and 1.95%, driven by proactive asset-liability management and a more favourable funding mix, the research house stated following a meeting with the bank’s executives.
TA Research, however, expects the recent cut in the overnight policy rate (OPR) could lead to potential downside risk from NIM compression for HLB in FY26.
“The recent OPR cut is expected to shave three to four basis points (bps) off NIM, partially offset by 1 bps uplift from the statutory reserve requirement cut.
“However, the possibility of a further one to two OPR cuts during the year could deepen the pressure,” the research house warned.
HLB’s management, however, is confident any shortfall can be mitigated through stronger non-interest income contributions.
NIM headwinds may also arise from ongoing deposit competition along with highly competitive loan pricing, especially in the mortgage and SME segments, TA Research stated.
It added HLB’s ongoing internal optimisation and an anticipated 50bps uplift in capital ratios ahead of Basel III reform implementation in July 2026, providing scope for a higher dividend payout ratio than the 34% rate in FY24.
HLB’s tariff-impacted clients, particularly in the electrical and electronics and machinery sectors, are showing no material deterioration, and some have begun to diversify their export markets.
Building on strong nine months of FY25 loan growth of 7.2%, TA Research projects HLB to sustain 7% to 8% loan growth through FY26 to FY27.
It has maintained a “buy” on HLB with a target price of RM23.59 a share, the valuation of which is based on an implied price to book value of 1.25 times.
The stock was last trading at RM19.92.
