RAM Ratings Upgrades Long-term Rating of Hong Leong Banking Entities to AAA, Assigns AA1 Rating to HLFG

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1. Media Release RAM Ratings upgrades long-term rating of Hong Leong banking entities to AAA , assigns AA1 rating to HLFG RAM Ratings has upgraded the long-term financial institution ratings (FIRs) of Hong Leong Bank Berhad (the Bank), Hong Leong Islamic Bank Berhad (HLISB) and Hong Leong Investment Bank Berhad (HLIB), from AA1 to AAA. Their short-term ratings remain unchanged at P1. Concurrently, we have assigned AA1/P1 corporate credit ratings (CCRs) to Hong Leong Financial Group Berhad (HLFG or the Group). All the long-term ratings have a stable outlook. The upgrading of the ratings is primarily anchored by Hong Leong Bank's sustained track record of excellent asset quality across credit cycles, robust funding and liquidity position, and respectable domestic retail and SME franchises. HLFG's long-term CCR stands 1 notch below the AAA long-term FIR of Hong Leong Bank due to the Group’s structural subordination as a non-operating holding company. Meanwhile, the ratings of HLISB and HLIB were upgraded given their strategic roles as the respective Islamic and investment banking arms of the Group, which in turn are anchored by the ratings of Hong Leong Bank. Despite a substantial exposure to the property sector, Hong Leong Bank has consistently kept its asset quality among the best in the banking industry; its gross impaired loan ratio of 1.0% as at end-June 2017 remained superior to the industry's 1.6%. The Bank's loss-absorption buffers, which are among the strongest in the industry, provide an ample cushion against any unanticipated deterioration in its portfolio. Hong Leong Bank’s pre-tax profit was lifted to RM2.7 billion in fiscal 2017 (fiscal 2016: RM2.4 billion), driven by stronger contributions from 20%-owned Bank of Chengdu and given the absence of mutual-separation-scheme-related expenses incurred in fiscal 2016. Its healthier net interest margin amid lower funding costs had elevated the Bank's return on risk-weighted assets to 2.2% in fiscal 2017 (fiscal 2016: 2.0%). Hong Leong Bank's robust funding and liquidity position is underpinned by its expansive base of customer deposits. The Bank boasts one of the highest proportions of retail deposits in the industry (56%), which adds diversity and stability to its funding profile (industry: 38%). Furthermore, Hong Leong Bank's
2. loans-to-deposits ratio of 80 % allows room for ample growth, and remains favourable compared to its peers (industry: 89%). Meanwhile, the Bank's capitalisation levels are healthy, with respective fully loaded common-equity tier-1 and total capital ratios of 12.7% and 15.8% as at end-June 2017. Hong Leong Bank remains well poised to weather any potential slippage in its credit profile and additional provisions related to MFRS 9. Table 1: Ratings of HLFG, Hong Leong Bank, HLISB and HLIB Rating(s) Hong Leong Financial Group Berhad Corporate Credit Ratings AA1/Stable/P1 Proposed Multi-Currency Senior Notes, Tier-2 Subordinated Notes, and Additional Tier-1 Capital Securities Programme of up to RM25.0 billion* i) ii) iii) Senior Notes Tier-2 Subordinated Notes Additional Tier-1 Capital Securities AA1/Stable AA2/Stable A1/Stable Proposed Commercial Papers Programme of up to RM3.0 billion* -/-/P1 *Combined limit of RM25.0 billion Hong Leong Bank Berhad Financial Institution Ratings RM1.0 billion Innovative Tier-1 Capital Securities Issuance Programme (2009/2069) RM1.5 billion Nominal Value Subordinated Notes (2012/2024) RM10.0 billion Multi-currency Subordinated Notes Programme (2014/2044) Proposed Multi-currency Additional Tier-1 Capital Securities Programme of up to RM10.0 billion Hong Leong Islamic Bank Berhad Financial Institution Ratings Subordinated Sukuk Ijarah Programme of up to RM1.0 billion (2014/2024) Proposed Multi-currency Tier-2 Subordinated Sukuk Murabahah and Additional Tier-1 Sukuk Wakalah of up to RM2.0 billion i) Tier-2 Subordinated Sukuk Murabahah ii) Additional Tier-1 Sukuk Wakalah Hong Leong Investment Bank Berhad Financial Institution Ratings Analytical contact Choong Andrea (603) 7628 1115 andrea@ram.com.my AAA/Stable/P1 AA2/Stable AA1/Stable AA1/Stable A1/Stable AAA/Stable/P1 AA1/Stable AA2/Stable A1/Stable AAA/Stable/P1 Media contact Padthma Subbiah (603) 7628 1162 padthma@ram.com.my
3. Media Release Date of release : 2 November 2017 The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations. RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant. Published by RAM Rating Services Berhad  Copyright 2017 by RAM Rating Services Berhad