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[ ] March 14, 2013
Table of Contents
INTRODUCTION....................................................................................................................2
PRELIMINARY...................................................................................................................2
HONG LEONG BANK BERHAD HISTORY..................................................................3
METHODOLOGY...................................................................................................................5
DATA SOURCE...................................................................................................................5
EVALUATING TECHNIQUE............................................................................................5
RESULT AND ANALYSIS.....................................................................................................7
RESULT................................................................................................................................7
ANALYSIS............................................................................................................................8
A. RETURN ON ASSET (ROA)...................................................................................8
B. RETURN ON EQUITY (ROE)................................................................................9
C. NET INTEREST MARGIN....................................................................................11
FINDING.............................................................................................................................13
CONCLUSION AND RECOMMENDATION...................................................................13
CONCLUSION...................................................................................................................13
RECOMMENDATION.....................................................................................................14
REFERENCES.......................................................................................................................15
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[ ] March 14, 2013
INTRODUCTION
PRELIMINARY
Based on (Rasidah Mohd Said & Mohd Hanafi Tumin, 2011) Banks, as the critical part of
financial system, play an important role in contributing to a country’s economic development.
If the banking industry does not perform well, the effect to the economy could be huge and
broad. Due to the U.S. sub-prime mortgage crisis that happened recently, the banking sectors
of many countries suffer huge losses, especially U.S. and E.U. The poor performance of the
banking industry has slowed down the U.S. economy and also the growth of global economy
until current period. One of the root causes is the poor lending policies and decisions made by
U.S. banks like Citibank, Wells Fargo and so on. In Asia, although the losses in banking
sectors are not as serious as U.S., it is also hurting the economy.
For this reason Bank Management BWBB2013 for second session 2012/2013 has
given student an individual assignment that should finish at the end of 15th March 2013. This
assignment is asked student to make an analysis about commercial bank performance for
2010 until 2012. The objective of this assignment:
i. Make student know how to using Information and Communication
Technologies (ICTs) to present data in simple way.
ii. Make student know how to applied a theory learn in classes been applied in
real life.
iii. Prepare student with the job prospective after graduate in Universiti Utara
Malaysia.
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To accomplish this assignment, I have chosen Hong Leong Bank Berhad to study
their performance during period 2010 until 2010. This analysis can be done by choosing any
three of financial ratio that I learn in class for example market share ratio, return on asset
ratio, return on equity, net margin interest and so on. After finish evaluating Hong Leong
Bank performance, the last step I must make a conclusion and recommendation about this
bank performance for the period 2010 until 2012.
HONG LEONG BANK BERHAD HISTORY
Hong Leong Bank Berhad is a public listed company on Bursa Malaysia and a
member of the Hong Leong Group Malaysia. Headquartered in Malaysia, the group has been
in the financial services industry since 1968 through Dao Heng Bank Ltd. in Hong Kong.
Hong Leong Bank started the business in Kuching, Sarawak since 1905 under name of
Kwong Lee Mortgage and Remittance Company. At 1934, Kwong Lee Mortgage and
Remittance Company has incorporated as Kwong Lee Bank Ltd. and in 1989, it was renamed
MUI Bank through Hong Leong Financial Group Berhad. In 2004, the finance company
business of Hong Leong Financial Group Berhad was acquired by Hong Leong Bank.
The successful of Hong Leong Bank continue in 2011 after the merger with EON
Bank Group, this merger effectively transforms the Bank into a banking group that have more
than RM140 billion in asset and an expanded network of 329 branched nationwide. Today
Hong Leong Group Malaysia is one of the largest business group in Malaysia and
internationally. The strong foundation and solid growth of the Group is attributed to the
Power of Vision – the Vision of its Chairman and Chief Executive Officer, Tan Sri Quek
Leng Chan is manifested and entrenched in the Group's corporate culture, which is firmly
rooted on the Group's core values of Quality, Entrepreneurship, Innovation, Honour, Human
Resource, Unity, Progress and Social responsibility.
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Figure 1.0: Hong Leong Bank asset and equity performance
Based figure 1.0, we can see in 2012 Hong Leong Bank total asset is increasing very
impressive that is 160.01% compare to 2011 that only 112.76%, the question is how Hong
Leong Bank asset became largest in that year? As we mention early in introduction. On May
2011, EON Bank has been taken over by Hong Leong Bank (San Ong, Ling Teo & Heng
Teh, 2011) after merger with EON Bank Hong Leong Bank acquired EON Capital for RM5
06 billion in May making it the fourth-largest banking group in Malaysia with combined
assets of more than RM140 billion (Wei Lian, 2011). From this view, we can say merger with
EON Bank is the best decision made by Hong Leong Bank to become the largest banking
group.
However, is that the Hong Leong Bank performance increase as the total assets
number increasing? For this reason we will conduct an external performance to evaluating
Hong Leong Bank performance for 2010 to 2012. In evaluating Hong Leong Bank
performance our main focus is return on assets (ROA), return on equity (ROE) and net
interest margin.
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2010 2011 20120
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
160,000,000
77,730,20887,650,089
140,284,562
5,815,0636,567,126
10,098,511
TOTAL ASSET AND EQUITY
TOTAL ASSET TOTAL EQUITY
Year's
RM '000
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METHODOLOGY
DATA SOURCE
In order to make an analysis, the data is collected from www.bursamalaysia.com and
the data that is collected is about annual report from 2010 to 2012, from the data the most
important part is financial statement. In financial statement is consist balance sheet (financial
position), income statement, statement of change in equity and cash flow statement (appendix
1.0) and lastly the data also collected from Hong Leong Bank website that is
www.hlb.com.my at here major of data about history of the business, type of product and
services, latest news and so on. Based on table 2.0, it’s shown the Summary of Hong Leong
Bank asset, equity, revenue, expenses and income, basically this data is the most important
and useful data to evaluating Hong Leong Bank performance from 2010 until 2012.
Table 2.0: Summary of Hong Leong Bank asset, equity, revenue, expenses and income
EVALUATING TECHNIQUE
In evaluating Hong Leong Bank Performance, the focus is more to external
performance because this data will be useful for investor, stockholder, government and
public. Based on (Kumbirai & Webb, 2010) the variable that we can use to measure bank
performance is profitability performance, liquidity performance and credit performance. To
be more specific this paper will focus on evaluating profitability analysis or profitability ratio.
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DATA/YEARTOTAL ASSET
TOTAL EQUITY
NET INCOME
INTEREST INCOME
INTEREST EXPENSES
2010 77,730,208 5,815,063 767,817 2,592,586 1,209,792
2011 87,650,089 6,567,126 807,493 2,952,529 1,501,193
2012 140,284,562 10,098,511 1,247,280 5,493,832 2,942,252
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Profitability Analysis/Profitability Ratio
Profitability ratio is the most common measure of bank performance. There have several
of profitability ratios but the focus is more to return on assets (ROA).
A. Return on Assets (ROA) = net profit/total assets
This ratio is primary an indicator of managerial efficiency and it shows the ability of
management to acquire deposits at a reasonable cost and invest them in profitable
investments. Besides that, this ratio also indicates how much net income is generated per £ of
assets the higher the ROA, the more the profitable the bank (Kumbirai & Webb, 2010).
B. Return on Equity (ROE) = net profit/total equity
Based on (Kumbirai & Webb, 2010) ROE is the most important indicator of bank’s
profitability and growth potential. It is the rate of return to shareholder or the percentage
return on each RM of equity invested in the bank. ROE is the return the company's
shareholders receive on their invested capital. Practically, ROE is directly related to the
company's profitability. A negative ROE, such as those in companies B, D and F, indicates
negative (loss) profitability from operations. Improvement in the after-tax profit margin will
help to increase this percentage (Mohd Suberi, Mastura, Omar & Md. Shariff, 2012)
C. Net Interest Margin
= (interest income from loan and security investments – interest expense on deposits
and other debt issued)/ total asset
Based on (Brophy, 2010) the net interest margin, also sometimes referred to as the net
yield on interest-earning assets, is usually defined as tax-equivalent net interest income and
divided by average interest-earning assets. The margin is calculated for a period of time, a
quarter or a year, and is expressed as a percentage.
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RESULT AND ANALYSIS
This section focuses more to present, analyse and discuss the result about Hong Leong Bank
performance for three years.
RESULT
Table 3.0: Summary of Hong Leong Bank external performance
Based on table 3.0, it’s show the summaries of Hong Leong Bank external
performance in term of profitability performance focus on return on assets (ROA), return on
equity (ROE) and net interest margin. Besides that, all the result that we get is in term of
percentage. To explain each result very specific we will move the most important section that
is analysis section
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RATIOS/
YEAR
RETURN ON
ASSETS (ROA)
RETURN ON
EQUITY (ROE)
NET INTERERT
MARGIN
2010
¿ 767,81777730208
¿0.99 %
¿ 767,8175815063
¿13.20 %
¿ 2592586−120979277730208
¿1.78 %
2011
¿ 80749387650089
¿0.92 %
¿ 8074936567126
¿12.30 %
¿ 2952529−150119387650089
¿1.66
2012
¿ 1247280140284562
¿0.89 %
¿ 124728010098511
¿12.35 %
¿ 5493832−2942252140284562
¿1.82 %
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ANALYSIS
A. RETURN ON ASSET (ROA)
Figure 3.0: Hong Leong Bank Return on Assets (ROA) performance
Figure 3.0 shows Hong Leong Bank performance in term of return on assets (ROA) in
trends 2010 to 2012. Basically, in 2010 the chairman’s was said in the annual report of 2010
about the improved of their return on asset compare to the last year. In 2009 Hong Leong
Bank ROA is about 0.92%, but in 2010 the ROA is increasing to 0.99%, meaning that for
each 1 ringgit of assets, Hong Leong Bank can generated 0.99% income and this clearly
shows what the Chairman’s Statement.
But in the next year which is 2011 the ROA is decreasing to 0.92% and is fall about
0.07%, the reason why a decrease in ROA is happened in 2011 we still don’t know because
the chairman’s never give an opinion about this matters in annual report of 2011. The fall in
ROA continues in year 2012 which the ROA became 0.89, but this time the percentage of
decreasing in ROA is lower than last year.
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2010 2011 20120.820.840.860.88
0.90.920.940.960.98
1
0.99
0.92
0.89
RETURN ON ASSETS (ROA)
RETURN ON ASSETS (ROA)
Year's
Return On Assets %
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Last year the percentage of decreasing was 0.07%, but this year the percentage is only
0.03%, this show what chairman’s statement in the annual report of 2012 which the ROA
improved to 1.1%i and we believe this problem started happened when Hong Leong Bank
merger with EON Bank in 6th May 2011. A merger with EON Bank has make Hong Leong
Bank became the fourth-largest banking group in Malaysia in term of total asset, because of
this ranked Hong Leong Bank still didn’t have enough time to make an adjustment between
net income and total assets.
In chairman’s statement in annual report of 2012 has said” While the merger activities
are on track and the synergies achieved above planned target, we are aware that there is still
much to do. To create sustainable value for all our stakeholders, we continue to focus on
improving efficiency across the board to drive synergies, customer fulfilment and business
momentum, maximise return on assets, execute branch rationalisation programmes, as well as
strengthen integrated risk and capital management”.
B. RETURN ON EQUITY (ROE)
2010 2011 201211.8
1212.212.412.612.8
1313.213.4 13.20
12.30 12.35
RETURN ON EQUITY (ROE)
RETURN ON EQUITY (ROE)
Year's
Return On Equity (%)
Figure 3.1: Hong Leong Bank Return on Equity (ROE) performance
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Figure 3.1 shows Hong Leong Bank performance in term of return on equity (ROE) in
trends 2010 to 2012. Basically, the performance of Hong Leong ROE is fluctuated among the
years. Based on annual report 2010 Hong Leong Bank performance in that year was the best
performing mid-size commercial bank, the brand value is more than 3 times larger than other
mid-size banks. From the report also the chairman’s said in July 2010, “The Edge Billion
Ringgit Club” awards programme recognising the biggest and best companies on Bursa
Malaysia saw Hong Leong Bank achieving a top 5 ranking for the Finance sector in all 3
categories – highest compound growth in pre-tax profit over 3 years, highest return on equity
over 3 years and highest returns to shareholders over 3 years. Notably, Hong Leong Bank
was the only commercial banking group to be placed in the top tier against financial services
groups and insurance companies.
On the other side, Hong Leong Bank ROE performance in 2011 is fallen dramatically
became 12.3% and it’s about 0.9% drop. In chairman’s statement on annual report 2011 he
said “this year was the second year of global economic recovery turned out to be an economic
quagmire for some western economies. While the emerging economies and in particular Asia
had largely led the recovery in this region, we are not insulated from the global headwinds
that are the consequence of western economies teetering on the edge of double-dip recession”
besides that the chairman’s also stated that “From the downgrade of the US sovereign credit
rating by S&P, to the Eurozone debt crisis and Middle East geopolitical tensions, and to the
earthquake that shook Japan and rising food prices, we are reminded of the need to
understand, manage and respond to the complexity of risks that are ever greater than before.
This is a period for unprecedented pace of change” based on this statement it clearly show
why in 2011 the ROE in fallen dramatically.
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After merger with EON Bank on 6th May 2011, the condition of Hong Leong Bank
change which is, in 2012 the ROE has increasing about 0.05% and became 12.35% compare
to last year was 12.30%, this clearly show the decision made by chairman’s is the best move
on future-proofing the sustainability of the bank. Besides that, chairman’s statement on
annual report 2012 has said “The merger of Hong Leong Bank Group with EON Bank Group
has enhanced our franchise value as a leading domestic bank in Malaysia. This has been
largely accomplished through increased synergies from the enlarged franchise, growth and
embedment of our position as a relevant, dynamic and competitive Asian bank to meet the
rapidly evolving needs of our customers” from this statement it show that the transformation
made by Hong Leong Bank.
C. NET INTEREST MARGIN
2010 2011 20121.55
1.60
1.65
1.70
1.75
1.80
1.85
1.78
1.66
1.82
NET INTERERT MARGIN
NET INTERERT MARGIN
Year's
Net Interest Margin (%)
Figure 3.2: Hong Leong Bank Net Interest Margin performance
Figure 3.2 shows Hong Leong Bank performance in term of net interest margin in
trends 2010 to 2012. Basically in 2010 the interest margin is 1.78% and it’s decrease from
last year that is 1.92%, meaning that last year Hong Leong Bank generated 1.92% income
based on interest, but this year Hong Leong Bank only can generated 1.78% income based on
interest.
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YearINTEREST INCOME
“00”
CHANGE IN
INTEREST INCOME
INTEREST EXPENSES
“000”
CHANGE IN
INTEREST EXPENSES
NET INTERERT MARGIN
CHANGE IN NET
INTERERT MARGIN
2010 2,592,586 -13.28% 1,209,792 -30.59% 1.78% -0.08%
2011 2,952,529 12.19% 1,501,193 19.41% 1.66% -0.07%
2012 5,493,832 46.26% 2,942,252 48.98% 1.82% 0.09%
Table 3.1: Summary of Hong Leong Bank interest performance
The decreasing in net interest margin continues in 2011, which is the net interest
margin became 1.66%, but in this year the percentage of decreasing is lower than last year.
Based on table 3.1, last year the net interest margin was decreasing about 0.08% compare to
2011 that only decrease about 0.07%, meanwhile in 2010 the interest income was decrease
about 13.28% but in 2011 the interest income increase about 12.19% and in 2010 also the
interest expenses was decline dramatically about 30.59% but in 2010 the interest expenses
rose by 19.41%, this clearly show even the net interest margin is fall in 2011 but the
performance of interest expenses and income is increase compare to 2010.
In 2012, an impressive growth in net interest margin Hong Leong Bank, which is the
net interest margin increase about 0.09% and beat last two years net interest margin that was
1.78% and1.66% became 1.82%. An increasing in net interest margin 2012 is due to the rose
of increase in interest income from RM 2,952,529,000 to RM 5,493,832, 000 and is about
46.26% increase. Besides that, an increase in interest expenses also the cause to increasing in
net interest margin, basically in 2011 the interest expenses was RM 1,501,193,000 and
increasing about 48.98% became RM 2,942,252,000. On the other side, a merger between
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Hong Leong Bank and EON Bank also can categories as a factor of rising in net interest
margin.
FINDINGBased on our result and analysis it shows at the end of 2010 Hong Leong Bank
performance starting fall and it became worst at beginning of 2011. After Hong Leong Bank
merger with EON Bank on 6th May 2011, Hong Leong Bank performance slowly became
good.
CONCLUSION AND RECOMMENDATION
CONCLUSION
This report is evaluating the performance of Hong Leong Bank as a commercial
banking sector over the period 2010-1012. The results indicate that Hong Leong Bank
performance in terms of profitability has been fluctuated since 2010 to 2012. In 2010, Hong
Leong Bank gained return on assets (ROA) has an improvement while, return on equity
(ROE) was the best in the history of Hong Leong Bank. Meanwhile, the net interest margin
was fallen compare to last year. Next in 2011 the condition of Hong Leong Bank was very
bad, whereas the ROA, ROE and net interest margin is fall because of the downgrade of the
US sovereign credit rating by S&P, to the Eurozone debt crisis and Middle East geopolitical
tensions, and to the earthquake that shook Japan and rising food prices. To avoid the
condition became worse Hong Leong Bank came up with plan by merger with EON Bank. A
merger with EON Bank was the best decision made by chairman’s whereas the performance
in 2012 almost all the profitability ratios became stable and increase, whereas the decreasing
in ROA became smaller than last year, the ROE have an a improvement and the net interest
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margin dramatically rise after fallen in last year. Based on this report, making an investment
in Hong Leong Bank is the best move to investor,
RECOMMENDATION
As we mention early merger with EON Bank was the best move of Hong Leong Bank
to become the largest bank. But today became a banking institution is very difficult because
Banking institution have so many regulation and compliance. For this reason Hong Leong
Bank must have a preparation and so many plans to become a leader in banking institution. In
my opinion the next step that maybe Hong Leong can make is merger or joint venture with
one of international banking in America to make Hong Leong Bank massive in this banking
industry.
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REFERENCES
Brophy, T. (2010, August 03). Investment Education. Retrieved March 12, 2013, from Value
Line: http://www.valueline.com/Tools/Educational_Articles/Stocks_Detail.aspx?
id=9211
Kumbirai, M., & Webb, R. (2011, December). A financial Ratio Analysis of Commercial
Bank Performance in South Africa. Journal compilation, 2(1), 30-53. Retrieved
March 10, 2013, from http://www.studymode.com/essays/A-Financial-Ratio-
Analysis-Of-Commercial-1312087.html
Mohd, S. A., Mastura, J., Omar, O., & Md. Sharif, H. (2012). Financial Ratio Analysis: An
Assessment of Malaysian Contracting Firms. Journal of Construction in Developing
Countries, 1, 71-78. Retrieved March 10, 2013, from
web.usm.my/jcdc/vol17_s1_2012/Art%205_jcdc17-s1.pdf
Ong, T. S., Teo, C. L., & Teh, B. H. (2011, November). Analysis On Financial Performance
And Efficiency Changes Of Malaysian Commercial Banks After Mergers And
Acquisitions. International Journal of Business and Management Tomorrow, 1(2), 1-
16. Retrieved March 10, 2013, from www.ijbmt.com/issue/71.pdf
Rasidah, M. S., & Mohd, H. T. (2011, March). Performance and Financial Ratios of
Commercial Banks in Malaysia and China. International Review of Business
Research Papers, 7(2), 157-169. Retrieved March 10, 2013, from
unpan1.un.org/intradoc/groups/public/.../apcity/unpan049143.pdf
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[ ] March 14, 2013
Wei, L. L. (2011, July 01). About Us: Business. Retrieved March 11, 2013, from The
Malaysian Insider: http://www.themalaysianinsider.com/business/article/hong-leong-
eon-merger-complete-from-today
Annual Report of Hong Leong Bank June 2010
Annual Report of Hong Leong Bank June 2011
Annual Report of Hong Leong Bank June 2012
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