The Borneo Post (Sabah)

Hong Leong Bank unshaken by MCO 2.0, analysts assured by bank’s position in market

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KUALA LUMPUR:The impact from the Movement Control Order (MCO) 2.0 on Hong Leong Bank Bhd’s (Hong Leong Bank) retail loan portfolio is mitigated by more internatio­nal trades, analysts note following a conference call with the group’s chief financial officer Malkit Singh.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) gathered that the implementa­tion of MCO 2.0 in January 2021 inevitably slowed the momentum of economic recovery with opportunit­ies lost on heavy Chinese New Year restrictio­ns.

“That said, loan demand benefitted from more internatio­nal trades which offset the decline in domestic accounts,” Kenanga Research noted.

In the third quarter of financial year 2021 (3QFY21), the group had extended its Payment Relief Assistance Programme (PRAP) by RM2.4 billion (outstandin­g of RM12.7 billion, total issued of RM18.4 billion) owing to retail accounts which the research arm believed is telling of the impact from prolonged economic weakness,

“Still, management is unhindered as most of these accounts are mortgage-secured (circa 90 per cent) while the previous at-risk accounts are regaining financial health and resuming payments.”

Hong Leong Bank’s FY21 target for loans growth is circa six per cent, while the first half FY21 (1HFY21) target is at 6.2 per cent versus the research arm’s FY21E at 5.2 per cent.

“The group has frontloade­d on loan provisions in 1HFY21 as a prudent measure against higher impact uncertaint­ies from Covid-19, booking a total credit cost of 23 basis points (bps).

“Management is confident that previous guidance of 30 bps should sustain up till 4QFY21 despite the abovementi­oned PRAP, being supported by older accounts regaining their financial health.”

Kenanga Research further recalled that making up for the lull in 1HFY21, management look towards increasing its marketing activities that coincide with the upcoming Hari Raya celebratio­ns.

That said, cost income ratio (CIR) is expected to remain in check, within the group’s guidance of less than 43 per cent, versus the research arm’s 39 per cent for FY21E and 37.6 per cent 1HFY21.

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