Hong Leong Bank operates one of Malaysia’s largest small and medium-sized enterprise (SME) franchises, with a strong domestic position anchored in micro and small businesses and supported by a whole-bank operating model. Woon Siew Hoong, Head of SME Banking at Hong Leong Bank, discussed the bank’s SME banking performance in 2025 against the backdrop of a deliberately defined segment strategy. He explained that SME Banking is designed to serve micro and small businesses by intent, while larger, more complex customers are systematically migrated to commercial banking as part of a structured lifecycle approach. SME Banking is organised as a relationship-managed business rather than a programme-driven lending engine. Credit decisions are positioned as discretionary, anchored in operating account behaviour, deposits and relationship knowledge, rather than automated eligibility rules. This design shapes how the bank manages risk, returns and customer longevity. Woon said that SME Banking operates within a whole-bank model. Rather than operating in isolation, SME Banking shares branches, trade centres, platforms and infrastructure with Retail, Commercial, Corporate and Institutional Banking. This horizontal integration underpins operating leverage and cost discipline. In performance terms, SME Banking contributed about 12.5% of Hong Leong Bank’s total revenue and operated at a cost-to-income ratio of about 12.9% in 2025, reflecting the operating leverage achieved through segment design, distribution sharing and engagement structures. The SME loan book stood at about MYR 38.25 billion (about $9.4 billion) in 2025, serving more than 350,000 SME customers, with a market share of around 9.1% of SME loans. These metrics frame the scale and reach of the franchise rather than its full economic contribution. Woon believes performance in 2025 demonstrated that scale in micro and small businesses could be translated into sustainable returns through relationship credit, transaction and trade monetisation, disciplined migration to commercial banking and consistent execution across channels. Segment design: micro and small by intent Woon was explicit that the composition of the SME customer base reflects design rather than outcome. SME Banking is built to serve sole proprietors, partnerships and small trading companies, with deposits and operating accounts used as the starting point for understanding customer behaviour before credit is extended. Micro enterprises were defined in the discussion as businesses with annual turnover of MYR 300,000 (about $74,000) and below. This definition anchors how onboarding, monitoring and engagement are structured, and explains why a large proportion of SME Banking customers sit at the micro and small end of the spectrum. As businesses grow, ownership of the relationship changes. Woon explained that larger and more complex accounts are migrated annually to Commercial Banking, particularly where trade intensity, balance size or product complexity exceeds SME Banking’s intended scope. Revenue from these accounts then “resides” in Commercial Banking, even though the bank continues to manage the customer holistically. This lifecycle discipline reframes how portfolio composition should be interpreted. A large micro and small business base is not a concentration risk, but a reflection of SME Banking’s defined mandate. Medium-sized businesses are not missing from the franchise; they are managed under a different segment with different economics. From a performance perspective, the key requirement is not to rebalance the SME book artificially, but to ensure that migration is executed cleanly, with deposits, transaction flows and ancillary relationships retained within the group as customers scale. Franchise scale and contribution to the group Hong Leong Bank holds about 9.1% market share in SME loans in Malaysia, reflecting both its reach into the micro and small business segment and its ability to originate working capital facilities at scale. Despite this footprint, Woon acknowledged that headline revenue contribution can understate SME Banking’s broader value. While the segment contributes 12.5% of group revenue, this figure captures only direct income and does not fully reflect indirect value created as SME relationships extend into other parts of the bank. SME customers frequently generate additional relationships across the group, including personal banking, mortgages, auto loans and wealth services for business owners and employees. These relationships are not always attributed back to SME Banking, even though they originate from SME acquisition. As a result, SME Banking functions not only as a profit centre, but also as a franchise acquisition engine. Under the bank’s “One Bank” model, SME relationships act as gateways into a broader ecosystem of financial services, anchoring lifecycle value that compounds across segments over time. Relationship-managed discretionary lending and risk outcomes A defining feature of the SME model discussed was the continued reliance on relationship-managed discretionary lending. Woon contrasted this with programme lending, emphasising that SME Banking does not rely on pre-approved templates or fully automated credit flows for micro and small businesses. Facilities are structured based on observed operating behaviour, cash-flow patterns and relationship knowledge. This allows credit terms to be tailored more closely to business realities, particularly for smaller enterprises with uneven or seasonal income. The discussion linked this approach directly to asset quality. Non-performing loan (NPL) levels were cited at about 1.9%, which management attributed to underwriting discipline, monitoring and early engagement rather than to benign conditions alone. Woon noted that turnaround times are managed carefully to balance speed and control. Standard working capital facilities were described as having processing times of around 40 hours, which management viewed as competitive without compromising relationship oversight. The performance trade-off is scalability. Discretionary lending requires experienced relationship managers (RMs) and consistent processes. Maintaining credit quality as volumes grow depends on sustaining RM capability, decision discipline and behavioural visibility across the portfolio. Digital onboarding, engagement teams and operating leverage Digital onboarding was described as a key enabler of scale economics. About 87% of SME customers are digitally active, and around 93% of new-to-bank SME customers are onboarded through electronic know-your-customer (eKYC), reducing friction and acquisition cost. However, management was clear that digital onboarding alone does not equate to relationship depth. A large population of smaller SMEs requires structured engagement to prevent dormancy and to expand product holding. To address this, the bank established a client engagement team dedicated to managing a very large number of smaller relationships. This team focuses on proactive outreach, needs identification and cross-sell, rather than full RM coverage for every micro customer. The objective is to increase revenue per customer without building a cost base that grows linearly with customer numbers. This construct was cited as one reason SME Banking can operate at a 12.9% cost-to-income ratio despite its relationship-led model. The effectiveness of this approach depends on whether engagement teams can consistently lift product holding and transaction activity while preserving service quality and credit discipline. Product holding, monetisation depth and transaction services Woon provided explicit metrics on relationship depth. Non-lending SME customers typically hold about two products, while lending relationships average closer to four products, reflecting deeper engagement once credit is established. The bank’s monetisation strategy centres on becoming the operating bank for SMEs. Working capital lending is treated as an entry point into broader relationships that include deposits, cash management, payments, collections and trade services. Documentary trade and foreign exchange (FX) hedging were highlighted as important for SMEs engaged in import and export activity. These services not only generate fee income but also increase visibility into customer cash flows, supporting both risk management and retention. Woon emphasised that deeper monetisation improves resilience. Customers that route operating flows through the bank are less likely to churn, and their behaviour provides early warning signals when conditions change. Distribution architecture: branches, trade centres and specialised coverage SME Banking delivery is anchored in a shared physical and organisational infrastructure. Branches are retail-run but tiered, with branch managers acting as key interfaces for SME customers. Specialised coverage complements this. The bank operates trade centres and leverages mortgage and auto-loan centres, which also contribute to SME relationship economics by providing additional touchpoints and distribution without incremental SME-specific cost. Woon explained that this shared architecture spreads fixed costs across segments. For example, auto-loan centres contribute distribution capacity that SME Banking can tap into without bearing the full cost, reinforcing operating leverage. This model also supports horizontal servicing. SME customers can access different capabilities within the same physical and organisational network as their needs evolve, rather than being handed off between disconnected units. The challenge lies in coordination. Whole-bank models require clear accountability to avoid service gaps, particularly during migration from SME to Commercial Banking. Ecosystem initiatives, DCAP and dealer-led financing Woon discussed ecosystem-linked initiatives designed to extend SME reach while preserving credit discipline. One example is the partnership with DCAP Digital, which supports AI-driven credit assessment within dealer and mobility ecosystems. Woon described how traditional leasing models often suffer from inconsistent credit assessment. The DCAP partnership allows the bank to embed more consistent underwriting and monitoring within dealer-led financing, particularly the motorcycle segment. Dealer overdraft facilities and embedded assessment tools were discussed as ways to entrench the bank within dealer ecosystems rather than operating as a peripheral lender. Artificial intelligence (AI) bots are used to support assessment and collections, improving consistency and speed. Ecosystem models compress distribution cost but increase dependency on partners. Governance, data responsibility and loss behaviour therefore require close monitoring. Woon presented these initiatives as targeted extensions of the core SME model rather than replacements for relationship banking. Regional context and Vietnam Woon also referenced Hong Leong Bank’s wider regional footprint across several ASEAN markets to contextualise how SME Banking capabilities are developed and deployed at group level. Vietnam was cited as a useful reference point, given its distinct regulatory regime and stage of market development. Woon explained that while certain group-level capabilities can be shared across markets, execution must remain market-specific. Regulatory requirements, customer behaviour and ecosystem maturity vary materially, limiting the direct transfer of domestic SME banking models. The Vietnam example was used to illustrate how SME Banking fits within a broader group strategy, rather than to signal a near-term performance driver for the Malaysian SME franchise. It demonstrated the bank’s approach to balancing regional scale with local execution discipline. AI, productivity and execution discipline AI was discussed in practical, operational terms rather than as a headcount-reduction tool. Woon described how automation and AI are used to shift staff time, citing examples where tasks move from 0.75 staff hours to 0.25 staff hours. The intent is to redeploy time toward higher-value activities such as engagement, monitoring and problem resolution, rather than to reduce staff numbers outright. AI is also used to surface opportunities and risks earlier, supporting relationship managers in prioritising outreach and intervention. The effectiveness of AI depends on whether it improves productivity without weakening judgement or accountability. What 2025 performance indicates Hong Leong Bank’s SME Banking performance in 2025 reflects a franchise built deliberately around micro and small businesses, supported by relationship-managed discretionary credit and disciplined lifecycle migration to Commercial Banking. Strengths are evident in scale, cost efficiency and asset quality. Digital onboarding, engagement teams and whole-bank distribution support operating leverage, while NPL levels of about 1.9% indicate stable risk outcomes. Challenges are execution-led rather than structural. Serving micro and small businesses at scale requires sustained RM capability, clean migration processes and continued investment in transaction, trade and data platforms. Opportunities centre on deepening monetisation through liquidity, payments, trade and FX, and on capturing lifecycle value as customers grow across segments. Overall, the 2025 discussion positions SME Banking as a core contributor to Hong Leong Bank’s performance, driven by segment clarity, horizontal integration and disciplined execution rather than by programme lending or platform volume alone.
