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

Published on 21 November 2014

RAM Ratings has reaffirmed the AA1/Stable/P1 financial institution ratings of Hong Leong Islamic Bank Berhad (the Bank). Concurrently, we have reaffirmed the AA2/Stable rating of the Bank’s up to RM1.0 billion Subordinated Sukuk Ijarah Programme. Hong Leong Islamic is wholly owned by Hong Leong Bank Berhad (the Group) and conducts the Islamic banking operations of the Group. The Group operates under a universal-banking model; Hong Leong Islamic leverages significantly on its parent’s back-room operations, risk-management systems, treasury operations and distribution channels. Hong Leong Islamic is considered highly strategic to Hong Leong Bank, and parental support is highly likely to be extended should the need arise.

Hong Leong Islamic’s asset-quality indicators are excellent, a reflection of the Group’s prudent credit-underwriting standards. As at end-June 2014, the Bank’s gross impaired-financing ratio stood at a low 1.3%, better than the overall banking industry average of 1.8%. The Bank’s overall conservative risk appetite will continue containing credit risks. The Bank’s large property sector exposure draws some concerns but remains within our tolerable levels at present.

Hong Leong Islamic’s ability to leverage off its parent’s extensive branch network underpins its strong funding position. We note that a slight contraction in deposits from ongoing efforts to optimise the Bank’s deposit mix had led to a financing-to-deposit (FD) ratio of 84.7% as at the same date, slightly higher than the industry standard.

In FY Jun 2014, Hong Leong Islamic reported a higher profit before tax of RM307.7 million, backed by a 1.6% growth in financing income and lower operation costs (-7.5% y-o-y). Group-wide cost-saving initiatives have yielded encouraging results; the Bank boasts one of the industry’s lowest cost-to-income ratios. Hong Leong Islamic’s capitalisation levels were sound as at end-June 2014, with a common-equity tier-1 capital ratio of 11.4% and a total capital ratio of 15.2%. Notably, the Bank’s total capital ratio had been boosted by a RM400 million tier-2 subordinated issuance in fiscal 2014.

Media contact
Chan Yin Huei
(603) 7628 1180
yinhuei@ram.com.my