Hong Leong Islamic placed on positive outlook

KUCHING: RAM Ratings has placed Hong Leong Islamic Bank Bhd’s AA1/P1 financial institution ratings and the AA2 rating of the Bank’s up to RM1 billion Subordinated Sukuk Ijarah Programme on a positive outlook; this was led by a positive rating outlook on its parent, Hong Leong Bank Bhd.

“The ratings incorporate our anticipation of ready parental support given the Bank’s role as the Islamic banking arm of Hong Leong Financial Group; its operations are closely integrated with those of its parent,” TAM said.

Similar to its parent, Hong Leong Islamic’s prudent credit- underwriting standards underscore its excellent asset quality. As at end- September 2016, the Bank’s gross impairedfinancing ratio stood at 0.8 per cent, significantly lower than the banking industry’s 1.7 per cent.

While its large exposure to property financing renders it more vulnerable and susceptible to any sudden and prolonged downturn for this sector, the credit quality of these portfolios has stayed robust. Hong Leong Islamic’s conservative risk appetite is envisaged to keep containing its credit risks.

Hong Leong Islamic’s ability to leverage off its parent underpins its strong funding position.

The bank’s funding base predominantly comprises customer deposits, which accounted for close to 95 per cent of its total profit-bearing funds as at end-September 2016; funding from large corporates and SMEs continued to dominate this base.

While the expansion of its deposit base had outpaced financing growth in fiscal 2016, a slight contraction in deposits from business enterprises in 1Q fiscal 2017 had led to a higher financingto-deposit ratio of 86.5 per cent as at end-September 2016.

Nonetheless, the bank’s liquidity coverage ratio of 99 per cent as at the same date remains favourable.

Hong Leong Islamic’s capitalisation levels also stayed sound, with respective commonequity tier-1 and total capital ratios of 10.6 per cent and 14.1 per cent.