KUALA LUMPUR (Feb 26): Hong Leong Bank Bhd (KL:HLBANK) is confident that the introduction of artificial intelligence (AI) will further contain operational costs, guiding that its cost-income ratio (CIR) will come in lower than initial expectations.

During a media briefing on Wednesday, the bank said its CIR is expected to be less than 40%, compared with 41% in its previous guidance. In its first six months ended Dec 31, 2024 (1HFY2025), the bank’s CIR stood at 38.8%.

According to Hong Leong Bank group managing director and chief executive officer Kevin Lam, the CIR performance has been exceptionally encouraging so far, as the group had previously guided for a slight increase in costs due to heavy information technology and digital investments.

"We were looking at investments in technology and people. It (the CIR) may need to go up a little bit before it can come down. But 1HFY2025’s CIR was better than what we had expected before.”

Lam assured that the incorporation of AI will not affect the bank's workforce, which comes at slightly under 10,000, but instead could improve the productivity of staff.

In August last year, Hong Leong Bank incorporated AI for its collection and telemarketing operations. Following the successful roll-out, it now aims to expand AI applications to other operation departments. One such example would be for relationship managers to increase their account loading ratio, according to Lam.

Meanwhile, Hong Leong Bank has entered into a strategic alliance with China's largest digital bank, WeBank Technology Services, whose portfolio consists of 400 million retail customers and five million business clients. Key areas of collaboration include sales and service delivery digitisation, automation and AI enablers to uplift productivity, and technology solutions to extend capabilities.

On another note, Lam sees immaterial impact coming from the removal of the Rule of 78 method for calculating interest on personal financing.

"It is just a different way of making sure that you are more transparent in presenting interest rates to customers, and I think it's the right thing to do in this market."

Drawing from his experiences in different countries, Lam said the effective rate remains pretty much the same, and it all depends on market competition.

Asked to comment on Hong Leong Bank’s stake in Bank of Chengdu (BoCD), Lam does not foresee any changes to the shareholding level in the near term.

To recap, Hong Leong Bank had in March 2022 subscribed to convertible bonds issued by the BoCD and fully converted them into equity — a move that raised its stake to 19.8%. However, the stake was diluted to 17.8% recently, as the remainder of the BoCD’s minority shareholders exercised their convertible bonds.

At Wednesday's market close, shares of Hong Leong Bank were up 54 sen or 2.6% at RM21.42, valuing the bank at RM46.04 billion.

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