Hong Leong Bank's profit up 16% to US$123m in 2QFY17

Thanks to a 2% pickup in loan growth and ongoing NIM expansion.

According to Maybank Kim Eng, HL Bank’s 2QFY6/17 results would have been marginally above expectations if not for increased provisioning at Bank of Chengdu (BOC). The domestic operations performed commendably especially with ongoing NIM expansion, decent NOII growth and positive JAWS.

Here's more from Maybank Kim Eng:

Results within expectations
HL Bank’s core net profit of MYR550m (US$123m) in 2QFY17 (+16% YoY, +1% QoQ) took 1HFY17 core net profit to MYR1.1b (US$247m) (+12% YoY), which was 51% of our full-year forecast and consensus – in-line.

Positives include (i) a pick-up in loan growth to 2% QoQ in 2QFY17 from 0.3% QoQ in 1QFY17, (ii) ongoing NIM expansion (+7bps QoQ), (iii) decent NOII growth (+19% YoY in 2Q) and (iv) ongoing cost efficiencies which contributed to positive JAWs. On the flip side, BOC’s contributions dropped 53% QoQ due to higher provisions, while credit costs were marginally higher.

Manageable impact from MFRS9
Absolute gross impaired loans (GIL) rose 5% QoQ (mainly due to one particular SME loan), but the group’s GIL ratio is still impeccable at just 0.86%. Credit cost was a benign 9bps in 2QFY17 and loan loss coverage (LLC) remains comfortable at 168% including regulatory reserves.

Preliminary assessment is that provisions could increase by 20-25% upon implementing MFRS9 in FY19, the impact of which would be to shave just about 20bps off the group’s current fully loaded CET1 ratio of 12.3%, by our estimates – a manageable impact.