Hong Leong Bank announces 9MFY2021 Results

Kuala Lumpur, 27 May 2021 - Hong Leong Bank Berhad (“Bank” or “HLB”), (BM: HLBANK) today announced its results for the nine months ended 31 March 2021 (“9MFY21”).

• Net profit after tax for 9MFY21 improved 12.8% year-on-year (“y-o-y”) to RM2,171 million with sustained ROE above 10% at 10.4%.
• Gross loans and financing maintained its growth momentum, expanding by 7.3% y-o-y to RM152.8 billion as we continued to support clients with their financing needs.
• Asset quality remained robust with Gross Impaired Loan (“GIL”) ratio stable at 0.53%, significantly lower than industry average, coupled with a solid Loans Impairment Coverage (“LIC”) ratio of 205%.
• Capital and liquidity positions continue to be healthy with Common Equity Tier 1 (“CET 1”), Tier 1 and Total Capital ratios stable at 13.0%, 13.5% and 15.7% respectively while Loans to Deposits ratio (“LDR”) and Liquidity Coverage ratio (“LCR”) were prudently managed at 83.6% and 147.7% respectively.

Domenic Fuda, Group Managing Director and Chief Executive Officer of HLB commented, “The Malaysian economy has rebounded from a negative growth last year, following the recovery in global economy. This was supported by pent-up demand and continuous accommodative policies. Accordingly, the Bank continued in our steadfast support of existing and new clients to ensure that they can focus on their recovery efforts, knowing that the Bank is here to help. The commendable performance of the Bank is attributed to the continuing discipline in executing our strategy, prudent cost management, disciplined loan/financing growth and proactive management of clients that are facing cashflow or income disruption because of the pandemic. As such, the Bank’s net profit after tax for 9MFY21 improved 12.8% y-o-y to RM2,171 million, underpinned by solid top line growth, lower operating expenses and robust contributions from our associates.

Gross loans and financing expanded by 7.3% y-o-y as global and domestic economic activities rebound driven by improved private and public sectors expenditure, accompanied with funding disbursed to support SMEs and corporate businesses. While providing the necessary assistance to customers, we also closely and consistently monitor our asset quality, ending the quarter with a stable GIL ratio of 0.53%. In anticipating further headwinds ahead of the recovery journey, the Bank remained prudent and built up additional pre-emptive impairment buffers during the quarter.” 

Resilient Business Performance

• Total income for 9MFY21 increased 15.4% y-o-y to RM4,135 million, underpinned by expansion in loan/financing and prudent asset-liability management.
• Net interest income rose for the third consecutive quarter to RM1,096 million for the quarter ended 31 March 2021 (“Q3FY21”), up 30.6% y-o-y attributed to our continuing efforts in managing funding cost and loan/financing expansion. Accordingly, for 9MFY21, net interest income was 20.4% higher y-o-y at RM3,170 million. Consequently, net interest margin (“NIM”) improved to 2.20% and 2.12% for Q3FY21 and 9MFY21 respectively.
• Non-interest income for 9MFY21 grew 1.6% y-o-y to RM964 million with a corresponding non-interest income ratio of 23.3%, predominantly led by increased wealth management activities and sustained Markets/Treasury gains.  
• Operating expenses (“opex”) for Q3FY21 were tightly managed, leading to 9MFY21’s lower opex by 2.4% y-o-y to RM1,545 million, with an improved cost-to-income ratio (“CIR”) of 37.4%.
• Correspondingly, operating profit before allowances for 9MFY21 grew by 29.5% y-o-y to RM2,589 million.

Maintained Growth Momentum in Loans/Financing

• Gross loans, advances and financing maintained its growth trajectory, expanding 7.3% y-o-y to RM152.8 billion, driven by expansion in our key segments of mortgages, SME and commercial banking.
• Domestic loans/financing growth continued ahead of industry growth rate at 7.4% y-o-y.
• Residential mortgages are 6.6% higher y-o-y at RM76.5 billion, supported by a healthy loan pipeline while transport vehicle loans/financing remained muted at RM16.9 billion.
• Domestic loans to business enterprises increased by 14.4% y-o-y to RM46.4 billion, whilst our support of SMEs saw this loan/financing portfolio grew 18.6% y-o-y to RM25.2 billion. The Bank’s community banking initiative, within the SME segment, maintained a robust growth rate of 31.3% y-o-y, attributed to concerted efforts in improving customer experience, understanding their needs as well as the continued support in their recovery journey.
• Loans and financing from overseas operations expanded 5.1% y-o-y, mainly contributed by Vietnam and Cambodia which grew y-o-y by 25.3% and 7.7% respectively.

Prudent Funding and Liquidity Position

• Focus and disciplined funding and liquidity positions allows us to continue to support and help clients through the recovery journey. Accordingly, LDR and LCR remained solid at 83.6% and 147.7% respectively.
• Customer deposits for 9MFY21 rose by 7.5% y-o-y to RM180.6 billion, with CASA growth at 27.4% y-o-y to RM56.4 billion, uplifting the CASA ratio to 31.2%, signifying effectiveness of the Bank’s cross-selling efforts and cash management offerings.
• The Bank’s funding base remained stable as supported by a sound individual deposit base of RM92.2 billion, representing an individual deposit mix ratio of 51.0%.

Solid Asset Quality and Healthy Capital Position

• Asset quality positions of the Bank remained solid with a stable GIL ratio of 0.53%. With additional pre-emptive impairment buffers built up during the quarter, LIC ratio as at 31 March 2021 was higher at 205%. Inclusive of regulatory reserve, the Bank’s LIC ratio is comfortably positioned at 274%.
• Capital position of the Bank is healthy with CET 1, Tier 1 and Total Capital ratios at 13.0%, 13.5% and 15.7% respectively as at 31 March 2021.

Regional Contribution

• International operations accounted for 21.8% of the Bank’s pre-tax profit in 9MFY21, spearheaded by robust contributions from Bank of Chengdu (“BOCD”). Profit contribution from BOCD improved 8.3% y-o-y to RM508 million in 9MFY21, representing 19.2% of the Bank’s pre-tax profit.

HLB continues to be a strong partner to customers and the communities it operates in and remains focused on extending assistance to customers who require financial help in navigating their recovery journey. In enabling customers to live and operate in the new normal seamlessly, the Bank continuously innovates to provide relevant products and quality services which assist customers to concentrate in the recovery of their businesses and personal finances as quickly as possible from the effects of the COVID-19 pandemic.

HLB Payment/Repayments Relief Assistance Plans for Individuals, SMEs and Commercial Customers

• Made available to help customers in their recovery journey.
• The loan/financing payments/repayments restructuring is available to all of those that have or are experiencing cash flows and income reduction, including credit card payments to alleviate the financial burden faced by customers impacted by the pandemic.
• Additional financing continues to be made available to SME and Commercial customers to help business recovery.
• For more details of the Bank’s Payment Relief Assistance Plans (“PRAP”), including customers under B40, M40 and Microenterprises, should proactively refer to our website, visit any of our branches or talk to their Relationship Manager so that we can provide the right support based on their particular circumstances.

HLB Debuts on Shopee Mall

• The first bank to have an official store on Shopee, offering banking products to cater for the growth of digital savvy consumers.
• Provides customers convenience where they can now sign-up for banking products and services anytime, from their familiar eCommerce platform.
• The three bank accounts offered on the HLB’s official store on Shopee are the 3-in-1 Junior Account which features a savings account, a reloadable debit card and a high interest FD account for young savers below the age of 18; the Pay&Save, a high-interest savings account with a built-in multicurrency feature for salary earners and, the fuss free Basic Savings Account.

HLB Renewable Energy Financing

• HLB continues to support green sectors, evidenced by our approval of RM1 billion in financing for renewable energy and energy efficient related projects and investments over the past 2 years.
• HLB SME Solar Financing, a green energy financing facility, was also introduced for Malaysian SMEs looking to install cost effective energy efficient small-scale solar photovoltaic systems.
• This programme offers financing of up to RM1 million per SME customer to facilitate the shift to renewable energy which helps in reducing their operational expenses and lowering their carbon footprint.

Sustainability Transformation

• In its efforts to strengthen sustainable financing practices and promote adoption of sustainable business strategies amongst its customers, HLB has further enhanced its Business & Corporate Banking ESG Framework since its launch last year. On top of the General Exclusion List, HLB has included Internal Environmental & Social risks rating system and additional guidelines to deal with high risks sectors such as forestry, metals & mining/quarrying, non-renewable energy and palm oil in its ESG Framework.
• HLB launched the ‘Sustainability Roundtable’ to engage industries on best practices in sustainability transformation, spearheaded with Plastics Manufacturing: Industry Outlook and Preparing for a Sustainable Future, involving key opinion leaders from the plastic manufacturing industry and specialists from WWF Malaysia.
• This inaugural virtual roundtable serves as a platform to engage SME and Corporate clients on a sustainability transformation conversation to raise awareness and inspire change with regards to best practices and the challenges faced by several key industries as they embark on their sustainability journey.
• The roundtable enables industry stakeholders including related associations, organizations and companies embarking on sustainability transformations to share and discuss the benefits and challenges in sustainability practices. The Bank will be organizing more roundtable sessions in partnership with relevant trade associations, authorities and leaders from industries in manufacturing of rubber, chemicals, metals, forestry, agriculture, palm oil, and mining or quarrying, in the pipeline throughout the rest of the year.

Community Investment

• HLB will work with the winners of the third HLB Launchpad program - Food Market Hub, Pay:Watch and ERTH (e-Waste Recycling Through Heroes) to tackle challenges in food security, gig economy and electronic waste management respectively in the next six months.
• This year’s Launchpad carried the theme “Reboot: Thriving Together in the New Normal” and was focused on identifying startups with innovative solutions that are Digital, Adaptable and Sustainable to help Malaysians adapt and thrive in this new and next normal.

Community Focus

• HLB donated RM200,000 to Mercy Malaysia as part of a community disaster response efforts.
• The contributions helped to aid Mercy Malaysia in health and COVID-19 related safeguarding and services, food supply, logistics support for response mobilization and lastly, for water, sanitation and hygiene support.

Business Outlook

Fuda commented, “Global economic recovery is gaining traction as the rollout of vaccination programmes and ongoing policy support provide the impetus to growth. Global demand and trade are bouncing back from the restrictions and downturn experienced last year, although the pace of recovery remains uneven, depending on successful containment of infection rates, as well as the particular sectors of the economy.

On our part we continue apace executing our strategic priorities to entrench ourselves as a highly digital and innovative ASEAN financial services institution. The focus is on building products and services propositions that ring true to our brand promise of “Built Around You” where clients are at the centre of everything we do. We continue to provide unwavering support needed to ensure clients can focus on the recovery efforts emanating from the COVID-19 crisis. The new operating environment has and will no doubt present us with new growth opportunities which we will endeavour to capture by being agile and responsive to the changing landscape. Concurrently, we continue to maintain our focus on ensuring a disciplined cost structure, enabling us to invest in growth opportunities and deliver sustainable returns to our stakeholders.”

Strong Asset Quality and Capital Position

• The Bank continues to focus on maintaining solid asset quality in preparation for unexpected headwinds ahead. GIL ratio ended lower at 0.48% as at 30 September 2020, down from 0.81% the prior year.
• With the pre-emptive credit loss buffer built up during the quarter, the Bank’s loan/financing impairment coverage (“LIC”) ratio improved to 190% as at 30 September 2020. Inclusive of regulatory reserve, the Bank’s LIC ratio stood at a comfortable 295%.
• The Bank ensures that capital position remains robust to withstand shocks from the ongoing pandemic, with solid CET 1, Tier 1 and Total Capital ratios at 13.5%, 14.1% and 16.3% respectively as at 30 September 2020.

Regional Contribution

• International operations contributed 21.3% to the Bank’s pre-tax profit in Q1FY21, mainly contributed by Bank of Chengdu (“BOCD”). In line with the encouraging rebound of China’s GDP growth, profit contribution from BOCD remains robust, improving 17.1% y-o-y to RM165 million in Q1FY21, representing 18.6% of the Bank’s pre-tax profit. 

Helping Customers Recover with Resilience

For as long as the situation requires, the Bank is committed to providing targeted HLB Payment Relief Assistance Plans (“HLB PRAP”) to help customers impacted by the COVID-19 pandemic. This includes customers who have started making their regular payments, but could face challenges down the road where they will still be able to apply for HLB PRAP before 30 June 2021. As at 16 November 2020, the Bank has helped more than 44,000 customers under HLB PRAP, comprising 8% of total gross loans/financing base.

Fuda said, “Since the start of COVID-19, HLB has been focused on helping affected customers recover with resilience from the socio-economic repercussions which have been keenly felt by businesses and individuals alike. While the industry-wide loan/financing payments deferment period has been important in providing relief to all Malaysians during the MCO and RMCO periods, the Bank is fully committed to providing further assistance to those who needed it by proactively reaching out to customers since early on in February to engage in conversation as to their financial stability and to extend assistance where needed and will continue to do so to ensure our customers can focus on the recovery efforts with the knowledge that we are here to help.”

Acceleration of Digital Innovations

Despite the pandemic, HLB continued to accelerate product innovation and push digital offerings to enable greater business efficiency and cost optimisation for its customers while contributing towards building a cashless society. In fact, COVID-19 has accelerated the rapid shift to a digital and contactless way of life – from buying essentials to working online.

In an effort to further assist SMEs, especially the micro and smaller businesses and traders to be more digital and embrace cashless as a way to improve resiliency, recover and eventually grow their businesses, the Bank introduced the Hong Leong Bank Tap on Phone POS terminal to help them adapt to the new way of payment transactions. This new contactless mobile payment acceptance service is a simple, seamless and secure payment solution that is low-cost and accessible to all types of businesses targeted at increasing sales as it allows consumers to have more cost-effective payment options.

To serve both young savers and their parents, the Bank launched HLB Pocket Connect which is the first in-market interactive digital banking platform for school going children and teenagers. It enables young savers to take charge of their own pocket money and savings and for parents to cultivate a responsible and healthy financial lifestyle in their children from a young age in a fun and interactive way. HLB Pocket Connect is the manifestation of a fit-for-purpose digital banking experience for customers who are raising a family consisting of young digital natives who are exposed to hyper personalisation, real-time gratification and highly interactive content and experiences.

Additionally, following the publication of Bank Negara Malaysia’s guidelines on Electronic Know-Your-Customer (“e-KYC”) on 30 June 2020, the Bank made history by becoming the first bank in Malaysia to offer a truly digital onboarding experience for Malaysians looking to open a bank account. The experience is fully digital, eliminating the need to visit a physical branch or Self-Service Terminal where customers only need to download the ‘Apply@HLB’ mobile app to open an account anytime, anywhere and their Debit Card will be delivered to them wherever they are in Malaysia. This simple, hassle-free and convenient way of banking is timely given the ongoing COVID-19 health concerns and corresponding shift to digital ‘everything’. In addition to account opening, a fully digital credit card and personal loan application, without requiring customers to meet face-to-face or visit any physical branches, will be introduced soon. 

According to Fuda, “We are pleased to be able to help Malaysians bank safely amidst the on-going pandemic and we are proud to be doing our part in pushing for greater digital innovation in the financial sector which would further stimulate the growth of the country’s digital economy, while meeting the needs and expectations of an increasingly digital and mobile-first generation of consumers. We also hope that this will deliver a significantly higher value-added customer experience which will set a new benchmark for the industry.”

Building a Vibrant and Sustainable Community

With over 110 years of deeply rooted history in Malaysia, HLB has truly embraced the value of being here for the long term, long before sustainability became a common business practice. From innovating banking products to talent management, the Bank always maintains a long-term mindset which includes the essential role it has in creating and sustaining a vibrant ecosystem of communities and the environment. To further drive this, the Bank introduced its ESG Framework which incorporates Environmental, Social and Governance (“ESG”) considerations in the credit evaluation of SME and Corporate Customers. This framework not only underlines HLB’s commitments towards building a vibrant and sustainable ecosystem in the communities it operates in, but also promotes adoption of sustainable business strategies and practices amongst customers and business partners.

The COVID-19 crisis is a prime example of disruptive change exposing the vulnerabilities in old structures and practices. However, it has also prompted acceptance, and hence further investments, into areas that will enhance the prospects of a more sustainable and resilient recovery. With the introduction of the ESG Framework, the Bank looks forward to working with customers to transform business operations, encouraging sustainability and promoting that we all play a part in building a better legacy to leave for future generations.

To take care of the less fortunate, we also enhanced a few ATMs to cater for the blind, underlining our commitment to ensuring inclusivity in providing services to all segments of society.

Business Outlook

Fuda commented, “We continue to see recovering signs in the global as well as domestic economy, although growth momentum appears to have lost some steam in recent weeks because of the CMCO and increased number of infections in some other countries. Lingering weaknesses in the labour market and still soft sentiments would dampen consumer spending, while resurging new cases could pose further risks to overall economic activities.

Nevertheless, we remain focused in our vision to build a highly digital and innovative ASEAN financial services institution. Emphasis continues to be on building products and services propositions that ring true to our brand promise of “Built Around You” where clients are at the centre of everything we do.

We will ensure that we continue to provide targeted assistance to clients that are and might experience financial difficulties emanating from the economic impact of the COVID-19 crisis. The new normal operating environment will no doubt present us with new growth opportunities which we will endeavour to capture by being agile and responsive to the changing landscape. Concurrently, we continue to revamp our cost structure, enabling us to invest in growth opportunities and deliver sustainable results to our stakeholders.”