RAM Ratings reaffirms Hong Leong Bank’s AA1/P1 ratings

Published on 03 January 2013

RAM Ratings has reaffirmed Hong Leong Bank Berhad’s (“Hong Leong Bank” or “the Group”) long- and short-term financial institution ratings at AA1 and P1, respectively. At the same time, the respective issue ratings of both Hong Leong Bank and Prominic Berhad (“Prominic” – a subsidiary set up to issue up to RM1.4 billion of Subordinated Notes under its Stapled Securities Issuance) have been reaffirmed (refer to table below). All the long-term ratings have a stable outlook.

Instrument	Rating Action	Rating	Outlook
Hong Leong Bank
Up to RM1.4 billion Capital Securities under the Stapled Securities Issuance	Reaffirmed	AA3	Stable
Up to RM2 billion Subordinated Medium-Term Notes Issuance Programme (2009/2029)	Reaffirmed	AA2	Stable
Up to RM1 billion Innovative Tier-1 Capital Securities Issuance Programme (2009/2069)	Reaffirmed	AA3	Stable
Up to RM1.7 billion Subordinated Notes (2010/2032)	Reaffirmed	AA2	Stable
Up to RM1.5 billion Nominal Value Subordinated Notes	Reaffirmed	AA2	Stable
Prominic Berhad
Up to RM1.4 billion Subordinated Notes under the Stapled Securities Issuance (2011/2061)	Reaffirmed	AA3	Stable

The reaffirmation of Hong Leong Bank’s financial institution ratings is premised on the Group’s strong franchise and sound credit fundamentals. The acquisition of EON Capital Berhad has increased the Group’s market share, with a stronger presence in consumer banking and small- and medium-sized enterprises as well as a wider distribution network. Having completed the integration exercise in May 2012, the Group will continue to focus on extracting merger synergies, enhancing efficiencies and rationalising its branch network.

Hong Leong Bank’s pre-tax profit came up to RM2.1 billion in FYE 30 June 2012 (“FY June 2012”), reflecting a full year’s consolidated profits. Concurrently, the Group’s return on risk-weighted assets improved to 2.3% for the year (FY June 2011: 2.2%). Overall, Hong Leong Bank’s asset quality is deemed robust. Its gross impaired-loan (“GIL”) ratio eased from 2.3% as at end-June 2011 to 1.6% as at end-September 2012. Meanwhile, strong recoveries had helped keep its credit-cost ratio low at 0.1%. Further comfort can be derived from the Group’s strong GIL coverage ratio of 134.3% as at end-September 2012. At the same time, its funding and liquidity profiles are perceived to be conservative, as depicted by its loans-to-deposits ratio of 72.8% and liquid-asset ratio of 33.2%.

Hong Leong Bank’s overall capitalisation levels are considered sound relative to its healthy asset quality and profit performance. As at end-September 2012, the Group’s tier-1 and overall risk-weighted capital-adequacy ratios stood at 12.0% and 15.8%, respectively. The Group had restored its capitalisation to pre-merger levels after having issued RM1.5 billion of subordinated debts and the adoption of Malaysia Financial Reporting Standards 139 on 1 July 2012.

Media contact
Lim Chern Yit
(603) 7628 1035
chernyit@ram.com.my