Hong Leong Bank's profit outlook positive amidst SME lending boost

It is projected to maintain tangible common equity at approximately 14% of risk-weighted assets.

Moody's Ratings forecasts Hong Leong Bank’s problem loan ratio to stay low, between 0.5% to 1.0% over the next 12 to 18 months, with problem loan coverage at 155% as of June. 

Risks to asset quality stem from HLB's plans for increased lending to Malaysian SMEs and expansion overseas.

HLB's return on tangible assets is expected to remain stable at around 1.4%, with a gradual recovery in net interest margins from early 2023. 

Although profits from minority investments, particularly in the Bank of Chengdu (BOCD), contribute over 30% to pre-tax profits, limited control over BOCD and its expansion strategy introduces potential risks.

The bank is projected to maintain strong capitalisation, with tangible common equity at approximately 14% of risk-weighted assets over the next forecast period. 

Liquidity remains robust, supported by HLB's retail base, with an average liquidity coverage ratio of 127% in the second quarter of 2024, above the 100% regulatory minimum.