Published February 14, 2009

Hong Leong Finance hit by $55.5m provision

By JAMIE LEE

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HONG Leong Finance (HLF) posted a 41.5 per cent slump in full-year net profit after a hefty provision for its structured product settlement.

It registered a net profit of $78 million for the 12 months ended Dec 31, 2008, down from $133.4 million a year ago.

This was due to a $55.5 million provision for settlements for soured investments in structured products, net of reversal/recovery for doubtful debts.

The company had distributed structured products such as the Morgan Stanley Pinnacle Series 9 and 10 notes and the Lehman Brothers' mini-bonds.

In comparison, the finance institution had written back $27.6 million in allowance in 2007.

Net interest income and hiring charges - referring to charges from instalment payments for fixed assets - rose 8.2 per cent to $206 million compared with $190 million in 2007, thanks to lower interest expenses.

Interest expense fell 10.1 per cent to $155 million, against a 0.5 per cent dip in interest income and hiring charges to $361 million.

Fees and commission income fell 20.9 per cent to $17.3 million from $21.8 million in 2007. Its tier-1 capital adequacy ratio stood at 17 per cent, up from 15.6 per cent a year ago.

Net loan assets, which includes hire purchase receivables, dipped 7.8 per cent to $7.41 billion at the end of the year from $8.04 billion in 2007.

Deposits and savings accounts of customers fell nearly 2 per cent to $8.1 billion compared with $8.26 billion a year ago.

'The strong growth in loans and advances seen in 2007 recorded a reversal in 2008 given the deteriorating global financial situation, with loan repayments exceeding new lending,' said chairman Kwek Leng Beng in a statement.

'Since the middle of 2008, HLF has been vigorously reviewing its loan portfolio which has been strengthened and well-controlled,' he added. 'In the interests of all parties, we hope that the flow of credit will be unclogged soon. In the meantime, the market calls for higher returns for lending risks.'

He also assured that HLF has no sub-prime exposure. No final dividend was declared.