Hong Leong Finance posts 30.5% fall in H1 earnings, cuts interim dividend

HONG Leong Finance, the financial services arm of Hong Leong Group, had a 30.5 per cent fall in net profit to S$36.5 million for the half-year ended June, due to greater allowances for loans, in response to the risks of Covid-19.

Specifically, net allowances for loans and other financial assets stood at S$6.7 million for H1, driven by the higher credit loss allowance for credit-impaired loans, as well as conservative allowances for non-impaired ones in light of the pandemic.

The pandemic has weighed heavily on Hong Leong's lending business. Net interest income for H1 fell 19.7 per cent to S$82.2 million, due to the softening of yields with a lower interest rate environment, as well as a slowdown in business activity amid Covid-19.

The mainboard-listed firm declared an interim dividend of 3.5 Singapore cents per share, down from five Singapore cents per share a year ago. The dividend will be paid on Sept 9.

The firm's net loan assets stood at S$11.2 billion as at end-June, down 0.7 per cent from a year ago. In tandem with the lower loan balances, the firm managed to lower deposits and balances of customers to S$11.8 billion, down 1.5 per cent year-on-year. It has S$2.7 billion in cash and equivalents.

Besides the lending business, fee and commission income also fell 27.2 per cent to S$4.8 million, on the back of lower fees earned from both lending and non-lending activities.

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However, with tighter budget controls and government relief measures, Hong Leong Finance also brought down total operating expenses by 19 per cent to S$37.8 million.

To mitigate the impact of higher costs with a larger deposit base, Hong Leong Finance strategically lowered its deposit costs in tandem with market benchmark rates.  The interest rates are likely to stay low with the weak economic outlook, the firm said.

It added: "Our exposure to the riskier sectors such as aviation, hotel and tourism-related services remains low and we do not finance oil traders. A large proportion of our loan portfolio is on a secured basis."

Shares of Hong Leong Finance closed at S$2.30 on Friday, down 0.86 per cent.