KUALA LUMPUR (Jan 6): RAM Rating Services Bhd has reaffirmed HONG LEONG BANK BHD []’s long- and short-term financial institution ratings at AA1 and P1, respectively.
It said on Friday that at the same time, the respective issue ratings of both Hong Leong Bank and Prominic Bhd (a subsidiary set up to issue up to RM1.4 billion of subordinated notes under the stapled securities issuance) have been reaffirmed.
The ratings agency said the ratings of the up to RM2.0 billion subordinated medium-term notes issuance programme and up to RM1.0 billion Innovative Tier-1 capital securities issuance programme previously issued by the former EON Bank Bhd have also been reaffirmed at AA2 and AA3, respectively.
These debt securities were assumed by Hong Leong Bank on July1, 2011 and all the ratings have a stable outlook.
RAM Ratings said the reaffirmation of Hong Leong Bank’s financial institution ratings was premised on the group’s strong franchise and sound credit fundamentals.
Hong Leong Bank completed the acquisition of EON CAPITAL BHD []’s assets and liabilities on May 6, 2011. This acquisition has placed the group as the fourth-largest domestic banking group in terms of assets (from sixth position previously), with a stronger presence in consumer banking and small and medium-sized enterprises as well as a wider distribution network.
“The integration plan for the merger has been progressing according to expectations, with completion targeted for mid-2012. As with any merger of this scale, integration issues could arise, particularly with regard to human capital,” said the rating agency.
RAM Ratings said Hong Leong Bank’s gross impaired-loan (GIL) ratio came up to only 2.1% as at end-September 2011, even after the inclusion of EON Capital’s loans.
“While EON Capital’s loan book will now be managed under Hong Leong Bank’s more prudent credit culture, we expect the Group’s GIL ratio to edge up given that the inherited portfolio from EON Capital had been originated under different underwriting standards.
“ Nonetheless, we derive comfort from the Group’s prudent GIL coverage ratio of 137.8% as at end-September 2011. Meanwhile, the group’s loans-to-deposits ratio came up to a healthy 72.6% as at end-September 2011, albeit higher than the 54.2% as at end-June 2010,” it said.
As for the RM5.1 billion acquisition of EON Capital’s assets and liabilities, RAM Ratings said the impact had been largely offset by the timely issuance of RM1.4 billion of hybrid capital securities, RM1.0 billion Tier-2 subordinated debt and a RM2.3 billion Tier-2 capital cumulative subordinated loan (Tier-2 sub loan) extended by its parent, HONG LEONG FINANCIAL GROUP BHD [] (HLFG), in May 2011.
As of end-September 2011, the group’s tier-1 and overall risk-weighted capital-adequacy ratios (RWCARs) had come down to a respective 7.8% and 13.2% (end-June 2010: 15.3% for both).
RAM Ratings said In October 2011, the group undertook a RM2.6 billion rights issue and repaid the RM2.3 billion Tier-2 sub loan from HLFG; its pro forma tier-1 and overall RWCARs based on its risk-weighted assets as at end-September 2011 came up to about 11% and 14%, respectively.
“We opine that Hong Leong Bank’s current capitalisation levels are healthy relative to its sturdy asset quality and profitability,” it said.
It said on Friday that at the same time, the respective issue ratings of both Hong Leong Bank and Prominic Bhd (a subsidiary set up to issue up to RM1.4 billion of subordinated notes under the stapled securities issuance) have been reaffirmed.
The ratings agency said the ratings of the up to RM2.0 billion subordinated medium-term notes issuance programme and up to RM1.0 billion Innovative Tier-1 capital securities issuance programme previously issued by the former EON Bank Bhd have also been reaffirmed at AA2 and AA3, respectively.
These debt securities were assumed by Hong Leong Bank on July1, 2011 and all the ratings have a stable outlook.
RAM Ratings said the reaffirmation of Hong Leong Bank’s financial institution ratings was premised on the group’s strong franchise and sound credit fundamentals.
Hong Leong Bank completed the acquisition of EON CAPITAL BHD []’s assets and liabilities on May 6, 2011. This acquisition has placed the group as the fourth-largest domestic banking group in terms of assets (from sixth position previously), with a stronger presence in consumer banking and small and medium-sized enterprises as well as a wider distribution network.
“The integration plan for the merger has been progressing according to expectations, with completion targeted for mid-2012. As with any merger of this scale, integration issues could arise, particularly with regard to human capital,” said the rating agency.
RAM Ratings said Hong Leong Bank’s gross impaired-loan (GIL) ratio came up to only 2.1% as at end-September 2011, even after the inclusion of EON Capital’s loans.
“While EON Capital’s loan book will now be managed under Hong Leong Bank’s more prudent credit culture, we expect the Group’s GIL ratio to edge up given that the inherited portfolio from EON Capital had been originated under different underwriting standards.
“ Nonetheless, we derive comfort from the Group’s prudent GIL coverage ratio of 137.8% as at end-September 2011. Meanwhile, the group’s loans-to-deposits ratio came up to a healthy 72.6% as at end-September 2011, albeit higher than the 54.2% as at end-June 2010,” it said.
As for the RM5.1 billion acquisition of EON Capital’s assets and liabilities, RAM Ratings said the impact had been largely offset by the timely issuance of RM1.4 billion of hybrid capital securities, RM1.0 billion Tier-2 subordinated debt and a RM2.3 billion Tier-2 capital cumulative subordinated loan (Tier-2 sub loan) extended by its parent, HONG LEONG FINANCIAL GROUP BHD [] (HLFG), in May 2011.
As of end-September 2011, the group’s tier-1 and overall risk-weighted capital-adequacy ratios (RWCARs) had come down to a respective 7.8% and 13.2% (end-June 2010: 15.3% for both).
RAM Ratings said In October 2011, the group undertook a RM2.6 billion rights issue and repaid the RM2.3 billion Tier-2 sub loan from HLFG; its pro forma tier-1 and overall RWCARs based on its risk-weighted assets as at end-September 2011 came up to about 11% and 14%, respectively.
“We opine that Hong Leong Bank’s current capitalisation levels are healthy relative to its sturdy asset quality and profitability,” it said.
