Hong Leong Bank ends FY25 on solid footing

PETALING JAYA: Hong Leong Bank Bhd, the country’s fourth-largest listed bank, has guided for a smaller net interest margin (NIM) ahead.

However, it believes the impact can be cushioned by a resilient current account and savings account (Casa) level and loan growth, apart from the lower statutory reserve requirement ratio (SSR) set by Bank Negara Malaysia.

In a media briefing, chief financial officer Malkit Singh Maan expects the bank’s NIM to compress by three to four basis points (bps) per annum, following the 25 bps overnight policy rate (OPR) cut in July.

Prior to that, the central bank had also reduced the SRR by 100 bps in May.

“The lowering of the SSR will benefit us one bps.

“In the fourth quarter ended June 30, 2025, Hong Leong Bank’s NIM improved by three bps quarter-on-quarter to 1.9%.”

As for the full financial year of 2025 (FY25), the NIM was four bps higher year-on-year (y-o-y) at 1.9%.

Net interest income increased 5.5% y-o-y to RM4,927mil, as a result of expansion in loans/financing and lower cost of funds.

For FY25, Hong Leong Bank’s customer deposits increased by 8.4% y-o-y to RM238.9bil, with Casa uplifted by 9.6% y-o-y to RM78.5bil.

This represents an improved Casa ratio of 32.9%. Going into FY26, Hong Leong Bank is targeting a NIM of 1.8% to 1.9% and a Casa mix of more than 32%.

Group managing director and chief executive officer Kevin Lam is expecting “structural headwinds” moving forward.

“When an OPR cut happens, within a few days loans have to be priced down immediately. However, our cost of deposits – particularly fixed deposits, which is a sizeable component – will take longer to be repriced.

“As such, there is a lagged effect where the yield declines first, while the cost of funds takes more time to adjust.

Hence, it will take some time before we can normalise the situation,” he said.

Lam is not expecting a second OPR cut this year, as the domestic factors “look quite strong”.

Nonetheless, he said a potential cut depends on the external environment.

“We have to see the US Federal Reserve’s (Fed) decision on rate cuts in the coming period; when will it be, how many and by how much will the Fed cut, and how will Malaysia respond correspondingly.

“In FY25, Hong Leong Bank’s gross loans/financing portfolio expanded by 7.8% y-o-y to RM210.1bil, while recording a gross impaired loan ratio of 0.54%.”

The growth was driven by expansion in the group’s mortgage, auto loans, small and medium enterprises (SME) and commercial banking segments.

The bank is guiding for a blended loan growth of 6% to 7% in FY26 while keeping a close eye on SME customers amid tariff-related headwinds.

Furthermore, Hong Leong achieved a return on equity (ROE) of 11.4% in FY25 and is aiming to achieve an ROE of 11.5% to 12% in FY26.

“Other than the traditional drivers of loan or deposit, the non-interest income (NOII) is a big driver for ROE,” Lam said.

Lam added that while it is uncertain whether the group can sustain the 33.4% y-o-y NOII growth achieved in FY25, he expects the bank to maintain a superior NOII relative to market benchmarks.

“We have to see if we can sustain that kind of growth for our NOII, because once we get to a higher base, it is not as easy anymore.

“However, the bank should still maintain a higher trajectory relative to the market,” he said.

Separately, Hong Leong Bank’s parent company, Hong Leong Financial Group Bhd, announced a record-high net profit of RM3.25bil in FY25, a 1.8% improvement over RM3.2bil in the previous year.

Hong Leong Capital Bhd reported a net profit after tax of RM58.4mil, a 40% decline y-o-y in FY25, primarily attributable to lower equity investment returns as well as reduced contribution from stockbroking and fund management businesses.