Financial institution analysis in an evolving environment: the case of the Hong Leong Bank BHD

Return on equity analysis provides a system for planning as well as analyzing financial institution performance. In the case of Malaysia, Bank Negara Malaysia has successfully implemented a merger program for Malaysian banks in order to face the onslaught of the imminent financial deregulation brought about by globalization. The purpose of this paper is to provide additional insights into the improvement of a bank’s financial situation, i.e. commercial banks, because of the recent series of bank mergers in Malaysia. This paper also presents an application of a model for financial analysis of a bank based on the DuPont system presented in Saunders (2000). Bank return on equity is decomposed into net profit margin, total asset turnover and the equity multiplier. This model is applied to the Hong Leong Bank Berhad. Hong Leong Bank is one of the ten anchor banks in Malaysia that must satisfy the requirement of having a minimum RM2 billion shareholders’ fund and a minimum total assets of RM25 billion.