Hong Leong Bank's 1HFY15 earnings within expectations at MYR 1.1bn

Loan growth improved, meanwhile.

Malaysia-based Hong Leong Bank reported 1HFY15 net earnings of MYR 1.1bn, coming in at 50% of Nomura's and Street estimates for FY15.

According to a research note from Nomura, meanwhile, loan growth of 6.7% y-y was an improvement q-q, up 3% in 2Q versus flattish in 1Q.

However, this was still lower than the management target of matching industry growth (currently ~9%) for FY15, while margin improved +3bps y-y.

Here's more from Nomura:

While Hong Leong Bank’s loan-deposit ratio rose 1ppt to 81%, NIMs fell ~5bp q-q due to the upward re-pricing of deposits post the July ’14 OPR hike as well as stiff competition for deposits during the quarter.

Encouragingly, loans growth improved to 7% (up from 6% in the previous quarter) and is now tracking ahead of our 6% forecast.

This was largely driven by mortgages as well as SMEs, both of which have a healthy pipeline. Asset quality remains strong, with the NPL ratio declining to below 1% with a high loan loss coverage of 130%.

Management provided some granularity on potential risk areas: [1] oil & gas sector related loans were about 1% of total. All are still performing although one account has repaid. [2] customers affected by FX movements account for less than 1%. The majority had FX cashflows to support the loan. [3] floods in the northern states – four business banking customers have requested for deferral of loan deadlines, which management has granted. Exposure is small.

The current fully loaded CET1 ratio is at 9.2%. Management is in the final stages of getting the plan approved and we should have more clarity in the near term.

In our report on 21 Jan 2015 (Strong asset quality, steady NIMs mitigate the impact of slowing loan growth), we estimated that the bank will need about MYR1.2bn (equivalent to ~5% of market cap) to raise its fully loaded core equity Tier 1 ratio to 10%.