Hong Leong Bank Announces FY21 Results

Kuala Lumpur, 30 August 2021 - Hong Leong Bank Berhad (“Bank” or “HLB”), (BM: HLBANK) today announced its results for the financial year ended 30 June 2021 (“FY2021”).

• Challenging end to the financial year, requiring additional buildup of buffers to cover continued lockdowns and the extension of repayment assistance packages.
• For the financial year, net profit after tax ended at RM2,861 million, up 14.7% compared to last year.
• Gross loans and financing maintained its growth momentum, as we continued to help clients with their financial needs, expanding by 6.8% y-o-y to RM155.8 billion, with asset quality remaining solid, reflected by a record Gross Impaired Loan (“GIL”) ratio at 0.46%.
• Capital and liquidity positions continue to be healthy with Common Equity Tier 1 (“CET 1”), Tier 1 and Total Capital ratios at 13.6%, 14.1% and 16.2% respectively while Loans to Deposits ratio (“LDR”) and Liquidity Coverage ratio (“LCR”) improved to 83.9% and 145.3% respectively.

Domenic Fuda, Group Managing Director and Chief Executive Officer of HLB commented, “Our financial year ended amid the reimplementation of the movement control order, reintroduced to combat the resurgence of COVID-19 positive cases, impacting the economic recovery momentum. Progress in the rate of vaccination remains key to the economic recovery in Malaysia and globally, as it is expected to help contain the rate and severity of infections, leading to the eventual opening of all economic sectors and social activities, followed by cross border activities in the future. We are cautiously optimistic that progress in this regard is underway and hence the local and global economies should enter 2022 with better recovery traction. In the meantime, we have been and remain steadfast in helping customers through this difficult period, enabling them to focus on their recovery efforts.

Amid the challenging business environment, we are pleased to deliver a resilient set of results for FY2021 as we continued to maintain a sharp focus on helping customers where it was needed, kept to a disciplined cost structure and continued investments in growth opportunities that will deliver sustainable positive outcomes to our stakeholders. Net profit after tax improved 14.7% y-o-y to RM2,861 million, underpinned by higher topline, tight cost management and robust contributions from our associates.

Gross loans and financing saw a healthy growth of 6.8% y-o-y, driven by expansion in key segments and funding disbursed to support SMEs and corporate businesses as part of their cashflow needs during the past year. Our asset quality remained healthy as we recorded a low

GIL ratio of 0.46% while concurrently, ensuring our customers receive the necessary assistance throughout their recovery journey. As the journey ahead remains uncertain until all economic sectors reopen, we have built up additional pre-emptive impairment buffers as cover for this uncertain business environment.”

Sustained Performance against a Challenging Backdrop

• Total income for FY2021 recorded a 14.4% y-o-y growth to RM5,467 million, on the back of loan/financing expansion and prudent asset-liability management.
• Net interest income for FY2021 was up y-o-y to RM4,310 million, resulting in a 26bps increase in net interest margin (“NIM”) for FY2021 to 2.14%. This is mainly attributed to our continuing efforts in managing funding cost, loan/financing expansion and the absence of modification loss that was registered in the same period last year.
• Non-interest income for FY2021 was recorded at RM1,157 million with a non-interest income ratio of 21.2%. Card fees remained subdued on the back of cautious retail customers spend. However, the impact was partially mitigated by higher contribution from wealth management activities.
• Operating expenses (“opex”) for FY2021 continue to be managed prudently, leading to 1.2% y-o-y lower opex of RM2,078 million. Accordingly, cost-to-income ratio ended at 38.0%.
• Consequently, operating profit before allowances for FY2021 was RM3,389 million, a 26.7% y-o-y increase compared to last year.

Maintained Growth Momentum in Loans/Financing

• Gross loans, advances and financing maintained its growth momentum, 6.8% higher y-o-y to RM155.8 billion, as the Bank continued to provide support to its customers in their personal and business endeavors. The Bank’s healthy loan growth is predominantly led by expansion in our key segments of mortgages, SME and commercial banking.
• Domestic loans/financing growth continued ahead of industry growth rate at 6.1% y-o-y.
• Residential mortgages are 5.3% higher y-o-y at RM77.2 billion, on the back of a healthy loan pipeline while transport vehicle loans/financing was stable at RM16.8 billion.
• Domestic loans to business enterprises increased by 12.6% y-o-y to RM48.8 billion, whilst our support of SMEs saw this loan/financing portfolio up 14.9% y-o-y to RM26.0 billion. The Bank’s community banking initiative, within the SME segment, sustained its solid growth rate of 26.6% y-o-y, attributed to concerted efforts in improving customer experience, utilisation of available data to analyse customers’ needs so that we can provide appropriate solutions as well as the continued support in their recovery journey.
• Loans and financing from overseas operations grew 18.9% y-o-y, attributed to solid y-o-y growth of 30.5%, 17.8% and 15.6% in Vietnam, Singapore and Cambodia respectively.

Prudent Funding and Liquidity Position

• The Bank continues to place emphasis in maintaining prudent funding and liquidity positions as this is pivotal in allowing us to support and help clients throughout the recovery journey. Accordingly, LDR ended the financial year at 83.9% while LCR improved to 145.3% compared to 136.8% a year ago. 
• Customer deposits for FY2021 increased by 5.6% y-o-y to RM183.3 billion. Leveraging on the Bank’s cash management solutions, CASA grew 22.5% y-o-y to RM59.2 billion, uplifting the CASA ratio to 32.3%.
• The Bank’s funding base remained stable, supported by a sound individual deposit base, exemplified by an individual deposit mix ratio of 51.2%.

Solid Asset Quality and Healthy Capital Position

• The Bank’s asset quality positions ended with a record low GIL ratio of 0.46%. With additional pre-emptive impairment buffers built up during the quarter, loan impairment coverage (“LIC”) ratio as at 30 June 2021 was solid at 247%. Inclusive of regulatory reserve, the Bank’s LIC ratio stood at 304%.
• Capital position of the Bank is healthy and supportive of future growth opportunities with CET 1, Tier 1 and Total Capital ratios at 13.6%, 14.1% and 16.2% respectively as at 30 June 2021.

Regional Contribution

• International operations accounted for 23.3% of the Bank’s pre-tax profit in FY2021, primarily driven by robust contributions from Bank of Chengdu (“BOCD”). Profit contribution from BOCD improved 14.1% y-o-y to RM721 million in FY2021, representing 21% of the Bank’s pre-tax profit.

Dividend

• The Board has declared a final dividend of 35.22 sen per share, bringing the total dividend to 50.0 sen per share for FY2021, with a dividend payout ratio of 36%.

Although it has been a challenging year due to the pandemic and its effects on businesses and livelihoods, the Bank continued to innovate and find ways where we could do more to serve customers, communities and employees. In this regard, we stepped up embedding sustainability in our operations. Our strategic focus on sustainability will serve as a strong guide, whether it is in extending assistance to customers who require financial help in navigating their recovery journey, enabling digital capabilities to help customers to live and operate in the new normal seamlessly or whether it is helping businesses embarking on their ESG journey, so as to ‘future proof’ their businesses. Similarly, the COVID-19 pandemic changed familiar routines for employees, where we have made numerous changes to the way we work to ensure continued uninterrupted operations as well as new ways of engaging and maintaining employee inclusion to ensure morale and health are cared for during these difficult times. Some of the initiatives undertaken in the year under review are:

Continued Repayments Assistance for Customers

• Payment Relief Assistance Plans continues to be available for individuals, SMEs and Corporate borrowers affected by the COVID-19 pandemic. In conjunction with the most recent lockdown that began in June, we extended PEMULIH relief assistance, via straight through processes to help SMEs and individual customers quickly and effectively, as the latest Movement Control Order was introduced.
• Over the course of the year, the Bank waived various fees including interbank transfer fees, stamp duties, late payment charges, interest/profit reduction for customers who caught up on their late payments and absorbing principal shortfalls from various initiatives such as Car Surrender Programmes and lower interest rate to Credit Card customers who converted their balance outstanding into term loans. The total amounts of these many initiatives totaled RM93 million.

Community Investment

• Nurturing FinTechs and startups that focus on providing communities with innovative solutions that are Digital, Adaptable and Sustainable to help Malaysians adapt and thrive in this new and next normal.
• Expanded access to financial literacy and inclusion through the financial sustainability programme, HLB DuitSmart, to the visually impaired community.
• Further driving the financial inclusion agenda for the visually impaired through the development of the first-of-its-kind ‘talking ATM’, allowing the visually impaired to be guided by audio instructions when using ATM machines at selected locations.
• Continued support for sustainability-focused social enterprises such as the Asli Co and Benak Raya Enterprise by onboarding them to the Bank’s CSR platform, HLB Jumpstart.

Innovation and Building Solutions Around Customer’s Needs

• Introduced various product enhancements on the HLB Connect mobile banking platform such as cardless ATM withdrawals, an 11 multi-currency account and in-app ‘App Authorise’ transaction to improve security and peace of mind when conducting banking online. It is also the first multi-lingual mobile banking app in Malaysia offering 3 language selections (English, Malay and Mandarin) to ensure that customers are able to transact in the language of their choice.
• Introduced first in-market interactive digital banking platform HLB Pocket Connect - an extension of the HLB Connect ecosystem developed for young digital natives to learn the value of ‘Earn, Save and Spend’.
• Enabled mobile banking for business customers with everyday functionalities with Hong Leong ConnectFirst, easing banking affairs for business customers via mobile enabled platform.
• Introduced ‘Hong Leong Bank Tap on Phone’, a mobile-based contactless payment solution to turn Android mobile devices into a payment acceptance terminal, improving COVID-19 safety measures for micro, small and medium enterprises.
• First bank in Malaysia to launch ‘Apply@HLB’ a fully digital account onboarding process leveraging on eKYC technology. Started offering banking products and services via an e-commerce platform in partnership with Shopee, as well as fully deploying Google Workspace bank-wide, harnessing the power of working on cloud, enabling the utilisation of virtual meetings capabilities among employees, customers and business partners.
  

Sustainability journey and transformation 

• The Bank held its inaugural virtual Sustainability Briefing in June to inform the investment community about its various sustainability initiatives and milestones since it has first embarked on this strategic initiative.
• Topics covered during the session incudes the Bank’s strong governance culture; the incorporation of sustainability into lending practices and various initiatives of the Bank in managing its own environmental footprint. 
• In its efforts to strengthen sustainable financing practices, HLB has further enhanced its Business & Corporate Banking ESG Framework since its launch last year. The Bank has also held roundtable sessions to engage SME and corporate clients on a sustainability transformation conversation. On top of that, the Bank has introduced climate-positive financing to promote adoption of sustainable business strategies amongst its customers. To date, the Bank has approved RM1.4 billion in renewable energy financing for solar, biomass, biogas and small hydropower projects.
• Apart from that, consumer/retail banking has been exploring and identifying opportunities to provide green financing and incentive for individual customers for amongst others, e-cars/green cars loan/financing.
• HLB has continued making incremental improvements to its ability to better manage its environmental footprint. The Bank is currently looking into further refining its GHG emissions disclosures as well as exploring carbon offset initiatives in effort to becoming a carbon neutral bank.

Employee and Community Focus

• Engaged and supported employees through strong employee engagement amid the pandemic using platforms such as Google Connect, the PlusVibes app and Brown Bag sessions.
• Donated RM255,368.86 to Mercy Malaysia as part of a community disaster response effort to aid in ongoing COVID-19 response mobilisation and support.
• Donated RM27,000 to the University of Malaysia Medical Centre to a High Flow Nasal Cannula Oxygen (“HFNC”) non-invasive ventilator unit to help critical patients suffering from COVID-19.

Recognition

The focus on innovation, community and employees has earned HLB accolades such as:

• Malaysia’s Best SME Bank and Best Digital Bank by Asiamoney, recognising its leadership position in providing holistic banking solutions powered by digital innovation, efforts to accelerate digital transformation and enable customers’ digital engagement.
• The IRBA Excellence Award 2020 for Islamic Digital Banking for Hong Leong Islamic Bank’s efforts to innovate and shape the Islamic digital retail banking landscape in Malaysia.
• Excellence in Leadership in Asia 2020 award recognising HLB as one of the top six banks in Asia and the only Bank from Malaysia by Euromoney Awards for Excellence 2020 for its commitment in extending support to its business, SME and individual customers and communities at large during the COVID-19 health and economic crisis.
• Global Good Governance Award for Best Social Impact for HLB Jumpstart and Human Resources Development.
• HR Excellence Awards winning silver in the categories of HR Leader of the Year, Young HR Talent of the Year and Excellence in HR Innovation.
• Employee Experience Awards 2021, winning in the categories of Best Digital Transformation Strategy (Gold) for efforts in reimagining HR through technology and Best Soft Skills Training Program (Silver) for providing its employees with the best opportunities to realise career aspirations.

Business Outlook

Fuda commented, “The economic environment remains challenging, with some economies seeing steady recovery although signs of plateauing have emerged. Continued policy support and vaccine progress should help cushion uncertainties surrounding the pandemic and the resurging cases caused by new variants. Domestically, containment measures pose downside risks to growth outlook but favourable vaccination rates and growth in our major trading partners, plus accommodative policy measures, should underpin a reasonable level of growth going into 2022.

In the journey to be a highly digital and innovative ASEAN financial services institution, we focus on building products and services propositions that ring true to our brand promise of “Built Around You” where clients are at the centre of everything we do. We remained steadfast in supporting existing and new clients over the course of the past year, to ensure that they can focus on their recovery efforts. In this new normal environment, it will undoubtedly present us with growth opportunities which we will endeavour to capture by being agile and responsive to the changing landscape. Concurrently, we will continue to be disciplined in our investments and expenditure to ensure a cost structure that enables us to invest in growth opportunities that will deliver sustainable outcomes to our stakeholders.”

Strong Asset Quality and Capital Position

• The Bank continues to focus on maintaining solid asset quality in preparation for unexpected headwinds ahead. GIL ratio ended lower at 0.48% as at 30 September 2020, down from 0.81% the prior year.
• With the pre-emptive credit loss buffer built up during the quarter, the Bank’s loan/financing impairment coverage (“LIC”) ratio improved to 190% as at 30 September 2020. Inclusive of regulatory reserve, the Bank’s LIC ratio stood at a comfortable 295%.
• The Bank ensures that capital position remains robust to withstand shocks from the ongoing pandemic, with solid CET 1, Tier 1 and Total Capital ratios at 13.5%, 14.1% and 16.3% respectively as at 30 September 2020.

Regional Contribution

• International operations contributed 21.3% to the Bank’s pre-tax profit in Q1FY21, mainly contributed by Bank of Chengdu (“BOCD”). In line with the encouraging rebound of China’s GDP growth, profit contribution from BOCD remains robust, improving 17.1% y-o-y to RM165 million in Q1FY21, representing 18.6% of the Bank’s pre-tax profit. 

Helping Customers Recover with Resilience

For as long as the situation requires, the Bank is committed to providing targeted HLB Payment Relief Assistance Plans (“HLB PRAP”) to help customers impacted by the COVID-19 pandemic. This includes customers who have started making their regular payments, but could face challenges down the road where they will still be able to apply for HLB PRAP before 30 June 2021. As at 16 November 2020, the Bank has helped more than 44,000 customers under HLB PRAP, comprising 8% of total gross loans/financing base.

Fuda said, “Since the start of COVID-19, HLB has been focused on helping affected customers recover with resilience from the socio-economic repercussions which have been keenly felt by businesses and individuals alike. While the industry-wide loan/financing payments deferment period has been important in providing relief to all Malaysians during the MCO and RMCO periods, the Bank is fully committed to providing further assistance to those who needed it by proactively reaching out to customers since early on in February to engage in conversation as to their financial stability and to extend assistance where needed and will continue to do so to ensure our customers can focus on the recovery efforts with the knowledge that we are here to help.”

Acceleration of Digital Innovations

Despite the pandemic, HLB continued to accelerate product innovation and push digital offerings to enable greater business efficiency and cost optimisation for its customers while contributing towards building a cashless society. In fact, COVID-19 has accelerated the rapid shift to a digital and contactless way of life – from buying essentials to working online.

In an effort to further assist SMEs, especially the micro and smaller businesses and traders to be more digital and embrace cashless as a way to improve resiliency, recover and eventually grow their businesses, the Bank introduced the Hong Leong Bank Tap on Phone POS terminal to help them adapt to the new way of payment transactions. This new contactless mobile payment acceptance service is a simple, seamless and secure payment solution that is low-cost and accessible to all types of businesses targeted at increasing sales as it allows consumers to have more cost-effective payment options.

To serve both young savers and their parents, the Bank launched HLB Pocket Connect which is the first in-market interactive digital banking platform for school going children and teenagers. It enables young savers to take charge of their own pocket money and savings and for parents to cultivate a responsible and healthy financial lifestyle in their children from a young age in a fun and interactive way. HLB Pocket Connect is the manifestation of a fit-for-purpose digital banking experience for customers who are raising a family consisting of young digital natives who are exposed to hyper personalisation, real-time gratification and highly interactive content and experiences.

Additionally, following the publication of Bank Negara Malaysia’s guidelines on Electronic Know-Your-Customer (“e-KYC”) on 30 June 2020, the Bank made history by becoming the first bank in Malaysia to offer a truly digital onboarding experience for Malaysians looking to open a bank account. The experience is fully digital, eliminating the need to visit a physical branch or Self-Service Terminal where customers only need to download the ‘Apply@HLB’ mobile app to open an account anytime, anywhere and their Debit Card will be delivered to them wherever they are in Malaysia. This simple, hassle-free and convenient way of banking is timely given the ongoing COVID-19 health concerns and corresponding shift to digital ‘everything’. In addition to account opening, a fully digital credit card and personal loan application, without requiring customers to meet face-to-face or visit any physical branches, will be introduced soon. 

According to Fuda, “We are pleased to be able to help Malaysians bank safely amidst the on-going pandemic and we are proud to be doing our part in pushing for greater digital innovation in the financial sector which would further stimulate the growth of the country’s digital economy, while meeting the needs and expectations of an increasingly digital and mobile-first generation of consumers. We also hope that this will deliver a significantly higher value-added customer experience which will set a new benchmark for the industry.”

Building a Vibrant and Sustainable Community

With over 110 years of deeply rooted history in Malaysia, HLB has truly embraced the value of being here for the long term, long before sustainability became a common business practice. From innovating banking products to talent management, the Bank always maintains a long-term mindset which includes the essential role it has in creating and sustaining a vibrant ecosystem of communities and the environment. To further drive this, the Bank introduced its ESG Framework which incorporates Environmental, Social and Governance (“ESG”) considerations in the credit evaluation of SME and Corporate Customers. This framework not only underlines HLB’s commitments towards building a vibrant and sustainable ecosystem in the communities it operates in, but also promotes adoption of sustainable business strategies and practices amongst customers and business partners.

The COVID-19 crisis is a prime example of disruptive change exposing the vulnerabilities in old structures and practices. However, it has also prompted acceptance, and hence further investments, into areas that will enhance the prospects of a more sustainable and resilient recovery. With the introduction of the ESG Framework, the Bank looks forward to working with customers to transform business operations, encouraging sustainability and promoting that we all play a part in building a better legacy to leave for future generations.

To take care of the less fortunate, we also enhanced a few ATMs to cater for the blind, underlining our commitment to ensuring inclusivity in providing services to all segments of society.

Business Outlook

Fuda commented, “We continue to see recovering signs in the global as well as domestic economy, although growth momentum appears to have lost some steam in recent weeks because of the CMCO and increased number of infections in some other countries. Lingering weaknesses in the labour market and still soft sentiments would dampen consumer spending, while resurging new cases could pose further risks to overall economic activities.

Nevertheless, we remain focused in our vision to build a highly digital and innovative ASEAN financial services institution. Emphasis continues to be on building products and services propositions that ring true to our brand promise of “Built Around You” where clients are at the centre of everything we do.

We will ensure that we continue to provide targeted assistance to clients that are and might experience financial difficulties emanating from the economic impact of the COVID-19 crisis. The new normal operating environment will no doubt present us with new growth opportunities which we will endeavour to capture by being agile and responsive to the changing landscape. Concurrently, we continue to revamp our cost structure, enabling us to invest in growth opportunities and deliver sustainable results to our stakeholders.”