Hong Leong Bank's net profit up 25% to ~USD317m in 1HFY13

It's 52% of the Street’s full-year estimate.

According to Nomura, Hong Leong Bank’s 1HFY13 net profit rose 25% y-y to MYR986mn, comprising 50% of its and 52% of the Street’s full-year estimate. 

Here's more from Nomura:

The result was driven by higher operating efficiency (operating expenses declined by 10.6% y-y), higher non-interest income (35.4% y-y growth) and impairment writeback of 7bps of total loans vs a charge of 2bps in 1HFY12.

What do the results mean?
The broader trend of improved cost efficiency is intact as the cost-to-income ratio declined to 44.6%, from 52% in 1HFY12. Management expects further improvement as branch network rationalisation progresses.

The loan-to-deposit (LTD) ratio inched up to 75%, from 74% at end-1QFY13, helping to stabilise NIMs. Encouragingly, management noted that it recognises the importance of maintaining margins and is willing to tolerate a higher LTD ratio going forward.

Loan growth was a bit disappointing at just 7%y-y, due to a weak trade financing segment. Management believes that growth will pick up in the coming quarters as customers start to drawdown on the approved loans and utilisation rates improve on existing facilities.

Asset quality remained robust (gross NPLs decline to 1.5%, from 1.6% the previous quarter).

Any change to guidance?
Management lowered its loan growth guidance to "high-single digits" from the original 10-12%. It attributed this to the lower demand for trade financing in the face of a weak external sector. NIM is expected to stay at current levels, while over the longer term, credit costs are expected to normalise at 20-25bps.