Is HLBANK/HLFG Really That Giam Siap?

I always like to ask my friends which bank stocks they would buy in Malaysia. Most of the time, the answers are the same: Maybank, Public Bank, CIMB, or RHB.

Then I ask, “Eh, how about Hong Leong Bank (HLBANK)?” Straight away, the comments come:

• Aiya, the boss too giam siap lah (means stingy in Hokkien dialect).
• Wah, price so high somemore — around RM19+. One biji (1 biji = 100 shares) already nearly RM1,900 leh! (typical retail mindset).

So I push further: “Then would you consider Hong Leong Financial Group (HLFG)?”

They just laugh and say: “HLFG? Even more giam siap than HLBANK!”

I believe most retail investors share the same mindset as my friends à HLBANK and HLFG are never on their list of investment choices. The typical reasons? Low dividend payout ratio and low dividend yield.

For retail investors (and even some fund managers), the priority is securing a steady, high-dividend income stream. That’s why when it comes to banking stocks, they naturally prefer banks with higher dividend yields, while bank asset quality often becomes a secondary concern.

 

But has anyone stopped to wonder why HLBANK/HLFG pays out relatively lower dividends compared to other banks? Is it really because the boss is stingy and doesn’t want to share profits with minority shareholders as my friends like to claim? If that’s true, then why does the very same boss, who controls HLBANK/HLFG, allow such high dividends in other of his/her companies like Hong Leong Industries (HLIND)? For reference, HLIND’s dividend payout was above 56 % since FY 2020 (reaching 87% in FY2024, including the special dividend).

 

To understand why HLBANK gives a relatively low dividend, perhaps it is good to look at a key capital ratio in banking industry, i.e. the CET-1 ratio, defined as:

 

CET-1 ratio = CET-1 capital / Risk-Weighted Assets (RWA)

 

Simply put, a higher CET-1 ratio means the bank has a stronger capital buffer and better ability to withstand an economic crisis. Retained earnings form part of CET-1 capital, and these are calculated after deducting dividends from net profit.

 

Now, what about Risk-Weighted Assets (RWA)? In simple terms, they represent the loans disbursed to customers, adjusted for their riskiness. Since lending always carries the risk of default, banks must hold sufficient capital against these loans.

 

In Malaysia, banks are required by BNM to maintain a minimum CET-1 ratio of 7.0% (4.5% minimum + 2.5% Capital Conservation Buffer). Put another way, a higher CET-1 ratio means the bank has more cushion, either by keeping more capital on hand or by controlling the size of its RWA (lending less).

 

Good news: All Malaysia banks are well above the regulatory requirement of BNM as shown in Table 1 below. Our banks are indeed well capitalized.

 

But how exactly does dividend payout tie in with the CET-1 ratio? Well, BNM requires banks to maintain at least 7%. If a bank is currently sitting at, say, 15% (almost double the requirement), it means the bank can afford to pay out more dividends. Of course, that reduces retained earnings → lowers CET-1 capital → and brings down the CET-1 ratio. But even then, the ratio would still be comfortably above BNM’s minimum, right?

 

Let us have a look in the CET-1 ratio on several banks in Malaysia (extracted from their 2024/2025 Annual Report) shown in Table 1 below:

Table 1: Key metrics for Malaysian banks (2024/2025)

RHB Bank has the highest CET-1 ratio and hence it could afford to declare a dividend payout of 60%, which is amazing. Meanwhile, Alliance Bank has the lowest CET-1 ratio, which could be attributed to the double-digit loan growth of 12% in 2024. Still, it declared a dividend payout of 40%, which is quite impressive. However, to preserve the CET-1 ratio at a comfortable level, Alliance Bank would need additional capital. This may be the reason why the Bank recently offered a rights issue to its shareholders.

 

How about Hong Leong Bank (HLBANK)? Its loan growth looks solid at 7.3% in FY2024, and yet its bad loans (GIL ratio) are among the lowest in the industry. The only catch is its CET-1 ratio — at 13.3%, which is slightly below the bigger banks.

 

Why lower? Mainly because HLBANK grew loans faster (which increases RWA) than its larger peers, plus it injected capital into its associate, i.e., Bank of Chengdu (BoCD) in China (note: HLBANK holds 17.8% stake in BoCD). To keep its CET-1 ratio at a relatively comfortable level, the bank has to retain more earnings, rather than paying more dividends from the net profit. That’s why its dividend payout is only around 33%, much lower than its peers.

 

The good news is, under the new Basel rules, the capital ratios of certain banks are expected to look stronger, and HLBANK’s management has hinted they may raise dividend payout closer to peers in the future. The new Basel rules would concentrate on the calculation of RWA, as the Basel Committee highlighted a worrying degree of variability in banks’ calculation of their RWA. The new Basel framework aims to restore credibility in those calculations by constraining banks’ use of internal risk models à some internal risk models give banks the most freedom to estimate their credit risk of RWA, often yielding a much lower risk (hence CET-1 ratio rises) than the regulator’s standard model. Hence, some banks that rely heavily on “internal models” to calculate their credit risk may see changes to their capital ratios once the new rules kick in, and that could affect their future dividends payout.

 

How about Hong Leong Financial Group (HLFG)? HLFG is essentially a holding company — it owns shares in Hong Leong Bank (HLBANK), Hong Leong Capital (HLCAP), and HLA Holdings (insurance arm). Naturally, its dividend payout depends on what it receives from these subsidiaries.

Table 2: Total dividends contributed by HLFG subsidiaries in FY 2024 (in RM)

Looking at FY2024 (see Table 2), HLFG declared total dividends of about RM620 million, which means it distributed almost 65% of the dividends it received to shareholders. The tricky part is HLA Holdings, which is unlisted, so its dividend contribution isn’t publicly available. But if we assume HLA Holdings paid out 50% of its FY2024 profit after tax (RM511m) as dividends to HLFG, then the effective payout to HLFG shareholders still comes up to around 51% of total dividends received from its subsidiaries.

 

So, is HLFG really “giam siap” and unwilling to share profits with minority shareholders?

Honestly, it depends on how you look at it. Some investors might only consider HLFG generous if it paid out 100% of what it receives. But in practice, retaining part of the earnings/dividends gives the group more flexibility to reinvest, support subsidiaries, and preserve capital buffers.