Latest news with #RM399mil
The Star
04-08-2025
- Business
- The Star
Banking sector likely to remain resilient in 2H25
PETALING JAYA: The banking sector appears poised to maintain its resilience into the second half of 2025, despite expectations of a quarter-on-quarter (q-o-q) uptick in loan loss provisioning (LLP) during the second quarter of financial year 2025 (2Q25). Industry-wide indicators show manageable risks amid stable credit trends and a modest slowdown in loan growth. According to CGS International (CGSI) Research, banks are likely to report increased LLP in 2Q25 compared to RM602.3mil in 1Q25, largely due to the absence of a one-off write-back in provisions by Hong Leong Bank Bhd (HLB) earlier in the year. 'We stick to our view that banks' LLP would increase q-o-q in 2Q25, mainly due to the non-recurrence of the write-back of RM399mil in management overlay by HLB in 1Q25,' said the brokerage. CGSI Research pointed out that total industry provisions rose by RM225.6mil in 2Q25, though the trend is not viewed as alarming. 'We are not overly concerned about our expected q-o-q increase in LLP as 2Q25 LLP would likely to be largely stable year-on-year (y-o-y) and the credit charge-off rate would likely stay low at around 15 basis points (bps). 'This is significantly below the pre-Covid-19 level of 25 bps (the average in 2018 to 2019),' it said. On the lending front, growth moderated slightly. Industry loan growth eased from 5.3% y-o-y at end-May 2025 to 5.1% at end-June, mainly driven by slower business loan momentum. Household loans, however, remained firm at 6% over the same period. 'We believe banks are on track to achieving our projected loan growth of between 4.5% and 5.5% for 2025, although it could come in closer to the lower end of the range, in our view,' CGSI Research stated. Specific loan segments offered mixed signals. 'The growth in residential mortgages and auto loans stabilised at 6.9% y-o-y and 6.4% y-o-y, respectively, at end-May 2025 and end-June 2025. 'Meanwhile, the growth momentum for credit card receivables eased slightly from 9.1% y-o-y at end-May 2025, to 8.8% y-o-y at end-June 2025,' CGSI Research noted. It expects auto loan growth to taper to about 5% in 2025, while residential mortgage expansion should remain steady at 6% to 7% y-o-y through the second half. In terms of asset quality, earlier concerns arising from a sharp rise in gross impaired loans (GIL) in May were allayed by a reversal in June. 'However, banks' GIL reversed course to decline by RM464mil, or minus 1.4% month-on-month, in June 2025,' CGSI Research explained. 'In our view, this seemingly erratic movement in GIL in May to June 2025 was caused by the classification of certain corporate loans as impaired in May 2025, that was rapidly followed by a reclassification back to non-impaired in June 2025 due to the repayment of the amount in arrears by the borrower,' it added. CGSI Research maintains an 'overweight' stance on Malaysian banks, with HLB as its top pick. Its optimistic view on the banking sector is premised on potential re-rating catalysts of ongoing write-backs in management overlay and expectations of increases in the dividend payout ratios for most banks. However, CGSI Research also warned of risks including weaker economic growth, rising inflation, and a resurgence in deposit competition. 'Any defaults of loan repayments by these companies could lift banks' GIL and LLP in 2025 to 2026,' it added.
The Star
30-05-2025
- Business
- The Star
HLB's strong 3Q results offset dilution of stake in China bank
CGS International Research has raised its FY25 core earnings per share forecast by 14.8% to factor in the RM399mil writeback. PETALING JAYA: The RM407mil dilution loss that Hong Leong Bank Bhd (HLB) recorded for its stake in Bank of Chengdu Co Ltd (BoCD), in China does not overshadow the strong financial performance of the bank for its third quarter ended March 31, (3Q25). The bank experienced the dilution after its stake in BoCD fell to 17.8% from 19.8% following the latter's move to complete the conversion of its convertible bonds into new ordinary shares, following an early redemption process concluded in February. 'This dilution loss came about after BoCD's minority shareholders exercised their convertible bonds (C-bonds) at a lower share price. 'The price differential forms the basis of the dilution impact. As a result, HLB now has a reduced stake in BoCD, which is still worth RM9bil. No further conversions of this scale are expected. 'Further dilutions, if any, will be extremely minor, and will come from either placements or rights issues,' MIDF Research stated in a report following HLB's result filings. The bank posted core net profit of RM1.35bil in 3Q25, up by 18% quarter-on-quarter (q-o-q) due mainly to the large writeback of its RM399mil management overlay. For the nine-month period (9M25) HLB's core net profit beat analysts expectations and was up 14% year-on-year to RM3.59bil on improved net interest income and non-interest income, aside from the overlay writeback. On the issue of the overlay, MIDF Research said the move brings HLB's loan loss coverage (LLC) rate down to 85% from 139% and leaves RM175mil worth of overlays remaining. 'Management is comfortable with the current LLC level, so we don't expect any major overlay allocations as the current gross impaired loan (GIL) ratio is to be maintained with only a few one-off impairments expected in overseas markets,' MIDF Research said. It maintained a 'buy' call on the bank with a revised target price of RM23.09 a share from RM22.10. Meanwhile, CGS International Research, which has HLB as its top pick for the sector with a target price of RM30.70 a share down from RM31.40, has raised its FY25 core earnings per share (EPS) forecast by 14.8% to factor in the RM399mil writeback. It also reduced its projection for associate contributions from BoCD by 10% for FY26 to FY27 to reflect the dilution of HLB's stake in the Chinese bank, leading to a 2% drop in its FY26 to FY27 EPS estimates. UOB Kay Hian Research said that, with HLB's capital ratio improving, it foresees a gradual increase in the dividend payout ratio from 35% in FY24 to 40%, 45%, and 50% for FY25 to FY27, implying a 4% to 6% yield over the period. It also has maintained its 'buy' call on the bank with a higher target price of RM23.80 a share from RM23.60.
