-  At our recent company visit, Hong Leong Bank (HLBB) indicated that loans growth for FY14F is likely to be higher than the annualised YTD loans growth of 5.7% for FY13F.

-  This is due to the company having refreshed its underwriting standards for the SME loans portfolio, with a more in-depth knowledge of the merged group’s SME customer base. Thus, it believes there is more room to increase business loans utilisation.

-  To recap, for the latest quarter ending March, HLBB recorded growth in the working capital segment (21.4% of total loans), at 2.5% QoQ in 3QFY13, in contrast to the contraction of -1.0% QoQ in 2QFY13.

-  The company said this was due to higher utilisation of credit lines during the quarter. Loans to SMEs (14.4% of total loans) grew 8.1% QoQ in 3QFY13, higher than the 6.5% QoQ rise in 2QFY13. Elsewhere, residential mortgage loans’ (35.2% of total loans) growth is relatively stable.

-  NIM guidance is maintained at 2%. Non-interest income is expected to be relatively stable. The previous 3QFY13’s service fees and credit card fees were generally lower because of ongoing impact on credit cards due to the Responsible Lending Guideline that was implemented early last year.

-  The good news is that HLBB has indicated that it sold off most of its trading securities position before the general election in May. This minimise any possible marked-to-market (MTM) unrealised losses arising from possible change in yield rates.

-  HLBB also confirmed that its 20%-held associate, Bank of Chengdu Co Ltd, remains on track for listing although there is no indicative timeframe yet for the IPO listing. HLBB remains keen to maintain its 20% stake post listing and had earlier indicated that it may plough in a further RM700mil in Bank of Chengdu to maintain its stake.

-  What is new from the visit is the possibility of stronger SME loans growth ahead, given that underwriting standards have now been refreshed, as well as low risk of its securities portfolio.

-  Otherwise, the group’s overall strategy is still to grow conservatively, thus justifying its premium pricing. Maintain HOLD.

Source: AmeSecurities