RHB Research: Loan growth, non-interest margin relief to lift Hong Leong Bank
In a note, the firm said the performance would be supported by strong loan growth outpacing the industry, net interest margin (NIM) relief from the statutory reserve requirement (SRR) cut, and robust non-interest income (non-II).
"Our full-year earnings forecast implies a 4Q25 net profit of RM1.07 billion, up two per cent quarter-on-quarter and three per cent year-on-year.
"That said, stronger than expected non-II and a higher than expected dividend payout could present upside surprises," it added.
RHB Research noted that Hong Leong recorded strong loan growth in 4Q25, largely from its SME banking segment, particularly in the industrial, real estate, and electrical and electronics (E&E) industries, as well as among other data centre supply chain players.
The firm said the bank's retail banking segment was also sound, with residential mortgages being a key driver.
"As SME and consumer loans account for 19 per cent and 64 per cent of group loans, we believe Hong Leong's 4Q25 loan growth could reach the upper end of its six to seven per cent FY25 target, if not exceed it.
"Management also observed strong current account and savings account (CASA) traction in 4Q25, although signs of seasonal year-end competition for deposits are emerging, particularly in the wealthy deposits segment," it said.
RHB Research added that the combined impact of the SRR and overnight policy rate (OPR) cuts in May and July 2025 is expected to reduce NIM, which measures the difference between interest income and interest paid, by two to three basis points over a full year.
However, it said management believes this impact could be offset by stronger non-II from falling bond yields and improving market sentiment, as well as potentially lower credit costs from reduced borrowing costs for customers.
On asset quality, RHB Research said the bank's position remained stable in 4QFY25, with the gross impaired loans (GIL) ratio at 0.57 per cent in 3QFY25 and no signs of stress.
The firm noted that exposure to US exporters is minimal, mostly in manufacturing and E&E, but management continues to monitor these accounts closely.
"Strong loan growth during the quarter suggests a net credit charge is more likely than a writeback.
"If GILs remain stable, the loan loss coverage (LLC) ratio, which measures how much provision a bank has set aside to cover impaired loans, at 95 per cent in 3Q25 should improve slightly.
"Management plans to gradually rebuild it to above 100 per cent," it said.
In terms of capital, RHB Research said that through internal capital optimisation, Hong Leong expects some capital uplift in 4Q25, with the CET-1 ratio at 12.8 per cent in 3Q25.
It said along with the phased adoption of new Basel regulations, this may allow the group to raise dividend payouts to 40 per cent earlier than the FY27 guidance, compared to 33 per cent in FY24.
"We estimate a full-year dividend per share (DPS) of RM0.74, which represents a 36 per cent payout.
"This implies a 2H25 DPS of RM0.46 or a 47 per cent payout for the second half, assuming our full-year earnings forecast is met," it noted.
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