Hong Leong Bank exceeds forecast with $330m net profit in H1 2020

Provisions declined with Q2 2020 net credit cost at 5bp.

Hong Leong Bank performed above estimates in H1 2020 with a core net profit of $330m (MYR1.39b), boosted by lower provisions and solid operating cost management, according to a UOB Kay Hian report.

Core net profit edged up 6.6% YoY after adjusting for $21m (MYR90m) in one-off joint venture disposal gains recognised in H1 2019. Provisions decreased with Q2 2020 net credit cost at 5bp against their estimate of 8bp.

Pre-provision operating profit for Q2 2020 rose 12.5% YoY anchored by above-industry loans growth at 7.3% YoY, 4bp expansion in net interest margin (NIM) and strong opex management at 3%, leading to positive operating JAW with cost-to-income ratio improving to 42.6% in Q2 from 44.7% in Q2 2019. Non-interest income soared 11% YoY amidst a 50.6% YoY growth in trading income and 19.9% increment in wealth management income, but partially counteracted by weaker credit card fee income at -9.3% YoY.

Hong Leong recorded above-industry loans growth of 7.3% yoy in H1 2020, underpinned by residential property loans growth at 9.8% YoY and SME at 7.9% YoY, but auto and non-residential property loans were dull. However, despite the challenging environment, the current loans approval pipeline suggests that its current loans growth momentum is likely to sustain well into H2 2020, the report wrote.

Its associate Bank of Chengdu’s earnings rose 19% YoY, backed by a robust loans growth whilst GIL ratio improved from 1.54% to 1.43%. Businesses in Sichuan province, where Bank of Chengdu operates, have not experienced a significant disruption in relation to the coronavirus, UOBKH noted. However, Hong Leong is still wary that if the outbreak persists, it could spill over to Sichuan and therefore impact growth.