Strong
Earnings Traction for 1st Quarter
The Bank Group's revenue growth momentum continues.
Net interest income was up 25% against
last corresponding quarter with the net interest
margin widening to 2.2% from 1.8%. The
core stream of non interest income was consistent
with the corresponding quarter last year, but
non interest income overall came in slightly lower
at RM88 million after accounting for mark-to-market
losses on derivatives and a lower advisory income
from IPO deals. Overall, net income
was up 11%, coming in strongly at RM422 million.
Business Transformation initiatives
remain work-in-progress and leading indicators
are positive although operating expenses on
infrastructure and people are increasing, but
this is to support future revenue growth streams
and greater sustainability as the franchise
grows.
Pre-provision profit before tax was up 9%
against last corresponding quarter, evidencing
stronger fundamentals and competitiveness as
the Bank moves into its next transformation
phase. The adoption of additional provisioning
for non-performing loans of 5 to 7 years and
over 7 years as per regulatory stipulations,
however brought the pre-tax profit to RM198
million or level with the corresponding
quarter's pre-tax profits.
The Bank should
continue to deliver a sustainable profit stream
on a platform of ongoing Business Transformation
initiatives that focus on high performance,
portfolio and business alignment, structural
innovations and new capabilities.
Strengthening
Domestic Core Business
Total Assets expanded to RM 61.3 billion,
up 1.2% q-o-q from RM 60.6 billion in the previous
quarter. Of this, loans, advances and
financing grew to RM 28.9 billion overall,
up 1.3% q-o-q or 11.4% y-o-y, with key
market share gains through consumer loans growth
in the financing of landed properties (up 5.2%
q-o-q) and credit cards (up 13.4% q-o-q) whilst
purchase of transport vehicles declined slightly
by 2.6% q-o-q, reflecting the market environment.
We continued to grow our deposits franchise,
with deposits from customers growing
1.7% q-o-q or 4.5% y-o-y to RM 45.0 billion
with the retail portion strengthening to 62%
of the total deposit base.
Expansion of
our customer segments and products continued
despite the competition.
Asset quality maintained
The quality of loan assets remained healthy,
with gross NPL ratio improving to 4.5%
(4.7% last June 2006) and net NPL ratio lowering
to 2.8% (3.1% last June 2006). Both
ratios are expected to remain below the industry.
The loan loss coverage ratio has also further
improved to 71.9% (65% last June 2006).
The ratios evidence
the strong asset quality mantra at the Group,
underscored by prudent lending and collection
practices, complemented by effective risk management.
Strong
Capital Position
The Group's core capital and total capital
ratio (after deducting proposed dividends)
stood at 12.98% and 16.31%, versus end
June 2006 ratios of 13.24% and 17.00%. Share buy-backs
stood at 75,175,200 (4.8%) of the Bank's issued
share capital as at end 30 September 2006. They
have been held as treasury shares and none were
resold or cancelled to date.
Structural
Changes to Accelerate Momentum of Key Business
Pillars
The convergence of the Business Banking, Trade,
Debt Capital Market and Treasury businesses offered
a compelling need to re-organise them into a Wholesale
Banking division. Platform readiness
and structural preparedness for Wholesale Banking
was pursued, and Wholesale Banking as a Strategic
Business Division commenced in August 2006, shortly
after the fiscal year end. The focus is
on solutioning and structured finance beyond lending,
and to drive fee income. The Group is building
these new capabilities.
Personal Financial Services has continued
to innovate to introduce new, relevant products
and services to the market, and they include
notably:
-
The re-launch
of the Hong Leong Platinum Credit Card
with distinct, superior propositions to
the core premium customers; and
-
The launch of
Hong Leong InvestSafe, an innovative
investment product in collaboration with
Amanah Raya Berhad (AmanahRaya).
-
The launch of
Hong Leong Personal Loan, a monthly
installment loan product that offers fast
loan approval within 48 hours nationwide.
This product is designed to help customers
meet financial needs such as home renovations,
education fees, weddings, travel and house
down payment;
-
A new stand-alone
Priority Banking Center in Damansara
Heights, Kuala Lumpur to cater for the affluent
segment was also opened in September 2006.
Scaling Up
Islamic Banking
Net profit before tax and zakat from Islamic
banking was RM 18.9 million for the first quarter,
up 10% from the corresponding quarter.
The higher profit was delivered through a combination
of:
-
Higher income
derived from investments from depositors
and shareholders funds;
-
Lower operating
expenses; and
-
Lower specific
and general provisions.
Ongoing positioning efforts focused on infrastructure
building for Islamic Investment Banking and
Wealth Management capabilities in Hong Leong
Islamic Bank Berhad, its wholly-owned subsidiary.
The Group's new
Takaful subsidiary, Hong Leong Tokio Marine
Takaful Bhd is expected to commence operations
by the end of 2006.
Dividend
The Board has not recommended any dividend
for the 1st quarter interim results.
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