Stable costs, healthy loan growth to support Hong Leong Bank

PETALING JAYA: Hong Leong Bank Bhd’s (HLB) net interest margin (NIM) is expected to remain broadly stable in the third quarter ended March 31, 2025.

This is despite some spillover impact from higher-cost deposits from the previous quarter.

Philip Capital Research, which has maintained a “buy” rating on the stock and a target price of RM24.30 a share, said the bank’s shift to a daily liquidity coverage ratio (LCR) calculation partly resulted in a modest two basis point quarter-on-quarter decline in NIM to 1.9%, due to increased funding costs.

“Management is closely monitoring the implications and may consider reverting to quarter-end LCR reporting should peers not adopt a similar approach.

“This can potentially ease pressure on funding costs,” the brokerage said.

The research house said that loan growth remains healthy, especially in key segments such as hire purchase and mortgages supporting full-year loan growth of 6% to 7%.

“Despite persistent competition for deposits, HLB maintains a sound loan-to-deposit ratio of 87%, providing flexibility to defend NIM.

“Its common equity tier-one ratio stands comfortably at 13%.

“This suggests the potential to raise its dividend payout ratio above the 33% recorded in the financial year ended June 30, 2024 (FY24),” it said.

It pointed out that the bank’s profit after tax and minority interest remains well cushioned against a potential 25-basis-point interest rate cut in FY26, with an estimated impact of around 1% while contribution from associate Bank of Chengdu offsets NIM pressure and reinforces its defensive earnings profile.

“The resilience particularly stands out amid heightened macroeconomic uncertainty, particularly following the introduction of reciprocal tariffs under the Donald Trump administration.

“Management is comfortable with maintaining its 17.78% stake in the Bank of Chengdu.”