Below are some figures showed in Hong Leong Bank Berhad annual report 2010.
Loans, advances and financing RM 38,555,670,000
Fixed deposit RM 41,089,439,000
Short term deposit RM 28,623,253,000
Cash on hand RM 15,682,086,000
What can you see from here?
Fixed deposit + Short term deposit + cash on hand = RM 88,394,778,000
If we use all the deposit + cash on hand divide with Loans, advances and financing, it gives 2.2
Which means RM 2.20 back up for every single RM 1.00 borrow out.
Is it HLBank play too safe of it? why they need so much money to back up in the bank?
This definately will erode HLBank profit margin. It will be more risky if market suddely goes wrong and some of the loans turn into bad debt, then HLBank will face a big problemm at that time.