(The following was released by the rating agency)
SINGAPORE, January 23 (Fitch) Fitch Ratings has affirmed
Malaysia-based Hong Leong Bank Berhad's (HLBB) ratings,
including its 'BBB+' Long-Term Issuer Default Rating (IDR) with
Stable Outlook. A full rating action breakdown is provided
The IDR is driven by the 'bbb+' Viability Rating, which in
turn is premised on HLBB's record in sound asset quality,
liquidity and profitability as well as its satisfactory capital
levels. An even stronger domestic franchise and higher core
capitalisation would likely benefit the bank's credit profile
and be positive for its ratings. Event risks or aggressive
expansion may have downward rating implications, especially if
the balance sheet becomes over-stretched or exposed to countries
with significant challenges surrounding the operating and
Fitch expects HLBB's loan quality to hold up better than
most Malaysian banks through economic cycles, due to its prudent
risk appetite and management. This, alongside HLBB's revenue
diversity, firm control over operating costs and incremental
synergies from the recent merger with EON Bank, has helped to
keep its risk-adjusted profitability above the industry average.
Earnings and reserves should provide a strong defence against a
potential rise in credit costs in a renewed downturn scenario,
thereby keeping its risk profile largely intact.
Funding stability is backed by HLBB's domestic franchise and
its large share of retail deposits. HLBB's loans/deposits ratio
of around 74% is one of the lowest in the industry, reflecting
its discipline in maintaining a liquid balance sheet, as well as
a modest reliance on wholesale funds. Liquid assets (comprising
government securities, interbank assets and unencumbered
short-term funds) amply cover all short-term money market
obligations, and 25% of deposits.
Fitch assesses HLBB's core capitalisation as satisfactory in
supporting risks from its banking operations, as well as
potential risks from its associate investments and immediate
holding company, Hong Leong Financial Group (HLFG). The Basel
III framework would require the bank to gradually switch to
common equity, instead of Tier 2 capital, to support its
associate banks, and the extended implementation timeframe would
support the bank's transition and compliance. HLFG has a
satisfactory debt-servicing track record which, together with
ample liquidity in Malaysia's financial sector and HLBB's sound
credit standing, helps mitigate refinancing risks.
The Support Rating and Support Rating Floor reflect Fitch's
view of a high probability of extraordinary state support for
HLBB, if needed. This view is based on the bank's systemic
importance to the domestic economy - as the fourth-largest bank,
accounting for about 9% of system-wide deposits - and the
government's record of supporting distressed financial
The senior notes are rated at the same level as HLBB's
Long-Term IDR as they constitute the bank's direct,
unconditional and unsecured obligations and, hence rank equally
with them. The deposits are rated one notch above the Long-Term
IDR to reflect Malaysia's depositor preference regime, where
depositors would rank above senior unsecured creditors in a
HLBB's full list of ratings:
- Long-Term IDR affirmed at 'BBB+'; Outlook Stable
- Short-Term IDR affirmed at 'F2'
- Viability Rating affirmed at 'bbb+'
- Support Rating affirmed at '2'
- Support Rating Floor affirmed at 'BBB-'
- Long-term deposits affirmed at 'A-'
- Senior debt affirmed at 'BBB+'