KUALA LUMPUR (Aug 27): Hong Leong Bank Bhd (KL:HLBANK) is taking a more cautious stance on loan growth in its current financial year, citing inflationary pressures from the conflict in the Middle East and intense competition for deposits.
The bank is maintaining its loan growth target at 6%-7% for the financial year ending June 30, 2027 (FY2027), despite having beaten that target with a 7.7% growth in FY2026.
Hong Leong group managing director and chief executive officer Kevin Lam said the bank had considered raising its loan growth guidance given its track record of expanding by more than 7%, but opted to remain prudent amid greater uncertainty ahead.
“We do not want to over-guide and be over-promising in terms of the growth,” Lam told reporters after the bank's FY2026 results briefing on Thursday.
He noted that industry loan growth is currently at about 5%, meaning Hong Leong's target of 6%-7% would still put it ahead of the broader banking sector.
Lam said higher energy prices arising from the Mideast conflict could raise the cost of goods and fuel inflation, putting pressure on both consumers and businesses.
Consumers could feel the impact across Hong Leong's housing, auto and personal loan portfolios, while small and medium enterprises (SMEs) could face higher transportation, raw material and labour costs, he said.
“So I think we need to be a bit more prudent and careful in terms of the loan growth, in terms of our credit underwriting approach,” Lam said.
However, Hong Leong does not see a need to raise provisions for now, given the quality of its loan portfolio.
For FY2027, the bank is guiding for a net interest margin (NIM) of between 1.8% and 1.9%, broadly in line with the 1.84% recorded in FY2026, on the assumption that Bank Negara Malaysia keeps the overnight policy rate (OPR) unchanged.
Hong Leong's NIM narrowed by six basis points year-on-year in FY2026.
Lam cautioned, however, that tight liquidity in the banking system could keep funding and deposit costs elevated.
“If we are only relying on high-cost deposits, that will give pressure to the net interest margin,” he said, adding that the bank will continue to focus on growing its lower-cost current and savings account deposits.
Still, Lam said the bank's guidance to maintain its NIM around current levels sets it apart from some peers that are expecting further margin compression.
The bank is also targeting a return on equity of 11%-11.5% in FY2027, after recording 11.2% in FY2026, while aiming to keep its gross impaired loan ratio below 0.65%.
For FY2026, Hong Leong's net profit rose 6% to RM4.53 billion, as gross loans and financing expanded 7.7% to RM226.3 billion.
The bank declared a total dividend of RM1.10 per share for the financial year, translating into a payout ratio of 50.4%.
Its shares closed up 88 sen or 3.83% at RM23.88 on Thursday, valuing Malaysia’s fifth-largest banking group at RM51.77 billion.