KUALA LUMPUR (Aug 29): Hong Leong Bank Bhd (KL:HLBANK) said on Thursday it is keeping a loan growth target of 6 to 7% for the financial year ending June 30, 2025 (FY2025) — the same target it set for FY2024 — as an act of prudence, despite having achieved gross loan growth of 7.3% in FY2024.

“We are entering a period where everybody thinks things are looking good, which makes us a little bit cautious during this period. So, we don't want to set too high expectations at this point in time. We often see that bad loans are written in good times," Hong Leong Bank group managing director and chief executive officer Kevin Lam told a media conference.

The bank is expecting a return on equity of (ROE) of 12% for FY2025, slightly higher than the 11.8% recorded in FY2024, while projecting net interest margin to hover around 1.85-1.95%, compared to 1.86% in FY2024.

“I think what is important from our financial performance is we look at non-interest income, our advisory income, [and] our CASA which is the no-credit-risk kind of business. That will make our return more sustainable,” Lam said.

“For loan growth, I think if things continue as they do, we'll likely have a good chance to surpass it like we have surpassed it the last few years,” he added.

Management is also optimistic about the group’s key overseas associate, Bank of Chengdu Co Ltd (BOCD), and guided for double digit loan growth in the coming quarters.

In the first half of 2024, BOCD’s gross loan grew 23% year-on-year, while loan quality appears to be robust, with a gross impaired loan (GIL) ratio of 0.66% and coverage ratio at 496%.

On loan quality, Hong Leong guided its GIL ratio to be less than 65 basis points and net credit cost to be less than 10 basis points in FY2025.

“We are on track with the three to five year strategic plan that we laid out about nine months ago. Driving profit engines in the core Hong Leong bank franchise is what we are focused on right now and improving momentum on our net interest margin and core franchise fee income is what we are going to work on to help us get to those end numbers,” Lam added.

Sustainable financing and digitisation to underpin long-term growth

During his closing remarks, Lam spent a good amount of time talking about the bank’s long-term value creation through sustainability and digitisation.

“We do believe that green financing for SME, especially in the area of solar, is something that actually is very favourable in Malaysia, and that looks like a trend that will continue to pick up.

"When you look at [customers’] own disclosures towards their scope 1 and scope 2 disclosure — I think that is beginning to pick up — some SMEs are starting to realise that they need to have ESG financing policy to manage that,” Lam said.

To facilitate its customers' sustainability transition journey, Hong Leong will employ stakeholder engagement strategies targeted at SMEs, to promote awareness and drive change through knowledge and sharing sessions with industry experts as well as government bodies.

The bank will also launch its sustainable finance framework, which outlines the eligibility criteria for green projects by this year.

So far, the bank has financed RM14.6 billion worth of green and affordable mortgages, RM1.2 billion green vehicle financing, and RM3.5 billion renewable energy projects.

Other than ESG, Hong Leong will be rolling out artificial intelligence (AI) robots in FY2025 on low value-added activities for better cost savings. These include AI collection agents, AI telemarketers and AI customer service agents.

“Today, I'm happy to share with some of you that the AI that's been talked about, realisation is no longer a buzzword but has helped Hong Leong Bank achieve meaningful improvements to our operational efficiency and customer experience,” Lam said before demonstrating the AI collection agent Sophia in front of the media.

According to the bank, the AI collection agent’s productivity, versus a human caller, is greater by 15 times and costs 86% less. One voice bot on concurrent lines is comparable to 21 human callers.

Nevertheless, Lam said the bank will pace its IT and digital investments to ensure that cost-income ratio remains at below 41%.

Shares in Hong Leong Bank closed 18 sen or 0.9% higher at RM21.28, valuing the bank at RM46.13 billion. The stock is up 14% year to date.