Hong Leong Bank - Branch visit confirms new SME potential for HLBB BUY

 - We visited Hong Leong Bank’s (HLBB) new Community Business Banking Branch at Southgate and met with the Head of Business Banking Support, Regional Head and Branch Manager. Community Business Banking Branches are community-based branches which are set up to serve the businesses within close proximity to the branch, and are part of the planned re-investment of selected branches as dedicated centres to support the group’s business banking division.  

- The new Southgate branch forms part of the earlier  planned conversion of 48 of the merged group’s branches into new Community Business Banking Branch. We understand that that the new target is now 50, with 48 to be converted from the merged group’s branches, and two new ones to be added. With the new Southgate branch, HLBB now has a total branch network of 330 branches, vs.329 previously. 

- Besides the Community Business Banking Branches, there are also another 39 Business Banking Centres which serve the larger commercial loans. These larger commercial loans are considered generally to be loans in excess of RM4mil.

- The target segment for the smaller Community Business Banking Branches are familybased businesses with loan amounts of less than RM4mil. We would consider this to be a new business segment for HLBB, as previously the group had not emphasised the utilisation of its branch network before to reach out to the businesses in the vicinity.   

- We understand the company is targeting to have at least two credit officers in these Community Business Banking branches. Given that these are likely traditional familybased businesses, these credit officers are trained in terms of assessment of cash flow for these businesses. 

- We understand from our visit that so far, there have been no major strains in the company’s SME portfolio, although these borrowers have been more vigilant in monitoring collection since the second half of last year. We understand that impaired loans trend for the SME portfolio remains benign so far, with no major upticks seen over the past few months.  

- We believe this SME segment is a new growth potential for HLBB, which is positive. SME loans made up about 15% of total loans currently. We are also reassured by the latest impaired loans trend.  Maintain BUY with fair value of RM14.10/share. 

Source: AmeSecurities