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Press Release
11 Dec | Tuesday
RAM Ratings reaffirms AAA ratings of Hong Leong banking entities and AA1 rating of HLFG
RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings (FIRs) of Hong Leong Bank Berhad (the Bank), Hong Leong Islamic Bank Berhad (HLISB) and Hong Leong Investment Bank Berhad (HLIB). Concurrently, we have reaffirmed the AA1/P1 corporate credit ratings (CCRs) of Hong Leong Financial Group Berhad (HLFG or the Group). The reaffirmations are anchored by Hong Leong Bank’s sustained track record of excellent asset quality across credit cycles and the Bank’s respectable domestic retail and SME franchises. 
 
HLFG’s long-term CCR is rated one notch below the AAA long-term FIR of Hong Leong Bank to reflect the Group’s structural subordination as a non-operating holding company and its moderate company-level double leverage and gearing ratios (at a respective 1.09 times and 0.09 times as at end-September 2018). The reaffirmation of HLISB’s and HLIB’s ratings is premised on their strategic roles as the respective Islamic and investment banking arms of the Group, which in turn are anchored by Hong Leong Bank’s ratings. As part of a larger universal-banking group, HLISB and HLIB significantly leverage on its parent’s branch network, distribution channels, treasury function and risk management systems.
 
Backed by a conservative credit culture, Hong Leong Bank has maintained a solid set of asset-quality indicators. Over the years, the Bank has consistently kept its asset quality better than that of the broader banking industry. Its gross impaired loan (GIL) ratio of 0.81% as at end-September 2018 remained superior to the industry’s 1.51%. Additionally, the Bank’s credit cost ratio came up to a benign 6 bps in FY Jun 2018 and 1Q FY Jun 2019 (FY Jun 2017: 13 bps) while its GIL coverage ratio of 200% (including regulatory reserves) is among the strongest in the domestic banking industry.
 
Despite a relatively thin net interest margin, Hong Leong Bank continued to boast healthy profitability, with a record-high pre-tax profit of RM3.2 billion in FY Jun 2018. Stronger income from treasury activities and lower loan-loss provisioning had offset heftier operating expenses for marketing and digitalisation initiatives. Significantly improved contributions from its 18%-owned associate, Bank of Chengdu, had also supported the Bank’s better profit performance, resulting in a higher return on risk-weighted assets of 2.6% in FY Jun 2018 (FY Jun 2017: 2.2%).
 
Hong Leong Bank’s robust funding and liquidity position is underpinned by its expansive base of customer deposits. The Bank boasts one of the highest proportions of retail deposits in the industry (56%), which adds diversity and stability to its funding profile (industry: 38%). The Bank’s capitalisation levels are healthy, with respective fully loaded common equity tier-1 and total capital ratios of 12.4% and 16.1% as at end-September 2018. 


 
Table 1: Ratings of HLFG, Hong Leong Bank, HLISB and HLIB
  Ratings
Hong Leong Financial Group Berhad  
Corporate Credit Ratings AA1/Stable/P1
Multi-Currency Senior Notes, Tier-2 Subordinated Notes, and Additional Tier-1 Capital Securities Programme of up to RM25.0 billion (2017/2117)*
 
i) Senior Notes
ii) Tier-2 Subordinated Notes
iii) Additional Tier-1 Capital Securities
 



 

AA1/Stable
AA2/Stable
A1/Stable
 
RM3.0 billion CP Programme (2017/2025)* P1
RM1.8 billion CP/MTN Programme (2011/2031) AA1/Stable/P1
*Combined limit of RM25.0 billion  
Hong Leong Bank Berhad  
Financial Institution Ratings AAA/Stable/P1
RM1.0 billion Innovative Tier-1 Capital Securities Issuance Programme (2009/2069) AA2/Stable
RM1.5 billion Nominal Value Subordinated Notes (2012/2024) AA1/Stable
RM10.0 billion Multi-currency Subordinated Notes Programme (2014/2044) AA1/Stable
Multi-currency Additional Tier-1 Capital Securities Programme of up to RM10.0 billion (2017/2117) A1/Stable
Hong Leong Islamic Bank Berhad  
Financial Institution Ratings AAA/Stable/P1
Subordinated Sukuk Ijarah Programme of up to RM1.0 billion (2014/2024) AA1/Stable
Multi-currency Tier-2 Subordinated Sukuk Murabahah and Additional Tier-1 Sukuk Wakalah of up to RM2.0 billion (2017/2117)
i) Tier-2 Subordinated Sukuk Murabahah
ii) Additional Tier-1 Sukuk Wakalah
 





AA2/Stable
A1/Stable
 
Hong Leong Investment Bank Berhad  
Financial Institution Ratings AAA/Stable/P1


Analytical contact
Amy Lo
(603) 7628 1078
amy@ram.com.my
 
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
 
 
Date of release: 10 December 2018 
 
 
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
 
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
 
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
 
Published by RAM Rating Services Berhad
Ó Copyright 2018 by RAM Rating Services Berhad
 
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