Singapore’s Largest Finance Company, Hong Leong Finance (SGX:S41)

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Following up from our previous article on An Introductory to Singapore’s Finance Companies, today we are having a deeper look at Hong Leong Finance Ltd (SGX: S41).

 

Hong Leong Finance Ltd was incorporated in 1961, and is currently Singapore’s largest finance company with a network of 28 branches and 7 SME centres island-wide. having owned by the Kwek Family, their main customers are the Small & Medium Enterprises (SME) and retail customers. Activities are principally governed by the Finance Companies Act and regulated by the Monetary Authority of Singapore (MAS).

 

Funding Sources

Similar to a commercial bank, a finance company in Singapore such as Hong Leong Finance is able to offer consumers deposits and savings accounts. These deposits are the Company’s main funding with customer deposits accounting for S$9.9 billion in FY2013 (fiscal year ends Dec) with 92.6% comprising of on-demand/up to 1 year deposits with the remaining deposits not exceeding 3 years to maturity. Since recovering from the crisis, Hong Leong Finance has regained its deposit base, increasing from S$7.3 billion in FY2009 to S4$9.9 billion in FY2013.

 

Assets

Total assets grew from S$8.9 billion in FY2009 to S$11.7 billion in FY2013. Loans grew about 10.3% CAGR to about S$9.1 billion which puts FY2013’s loan-to-deposit ratio at a conservative 91.7%. Loan exposure is mainly to the domestic property-related sector. In FY2013, Housing & HDB loans accounted for 16% and other property loans accounted for 63% of total loans. Hong Leong Finance controls its non-performers adequately. Despite having non-performing loans to hit around 3% of total gross loans during the global financial crisis in 2008-2009, the Company has taken measures to reduce its non-performers gradually. Non-performing loan ratio stood at 0.7% of total loans in FY2013. Moreover, most of these bad loans have also been secured by collateral, reducing the impact of an impairment.

 

Business Outlook…

Operating a similar business model to commercial banks, Hong Leong Finance has been facing increasing competition as our three local banks have stepped up lending to SME businesses. Local banks here have a larger deposit base which allow them to offer cheaper loans to their customers. Net interest income for Hong Leong Finance has declined over the recent years from S$216 million in FY2019 to S$148 million FY2013. Increasing overhead costs have also added on to the Company’s operating expenses, further reducing their bottom line. Having said that, Hong Leong Finance remains well-capitalized with capital adequacy ratio (CAR) at 17%, above the 10% CAR required by the MAS.

 

Value in Action

Hong Leong Finance has similar business model to a commercial bank except they have a more focused customer base and has certain limitations in their banking activities.

 

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All views and opinions articulated in the article were expressed in Willie’s personal capacity and do not in any way represent those of his employer and other related entities. Willie does not own any shares in the companies mentioned above.

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