Another challenging 2H but no more MSS : Zafrul

KUALA LUMPUR: CIMB Group Holdings Bhd CEO Tengku Zafrul Abdul Aziz said the group will not be looking at another round of mutual separation scheme (MSS) despite expecting a challenging second half due to lacklustre performance in Indonesia and Thailand.
"We're not planning anymore MSS in and outside Malaysia," he told reporters after the launch of the CIMB Bumiputera Vendor Development Programme yesterday.
"It (operations) will not go back to normal for the rest of the year as the conditions in Indonesia is still not where we thought we were gonna be, the numbers we had forecast are going to be difficult to achieve," Zafrul said.
Zafrul, however, believes that the group's second-half performance will be better than the first half of the year.
CIMB's net profit for the first quarter ended March 31, 2015 slumped 45.59% to RM580.12 million from RM1.07 billion in the previous corresponding period, mainly due to exceptional restructuring expenses of RM202 million.
For now, CIMB is still maintaining its projection of a 15 to 20 basis-point compression in net interest margin (NIM).
"No revision yet on our forecast, we've factored this NIM compression earlier on given the challenges we're facing this year," Zafrul reiterated.
As at end-March, its NIM was lower at 2.65%, compared with 2.87% in the previous corresponding period.
Zafrul expects the Malaysian operations to be flat and stable, without "showing signs of improvement or weakness".
"For the third quarter, based on what we've seen in the first half, we don't expect things to go worse or better from what we can see today," he added.
Earlier this month, CIMB announced that it had completed a MSS with a rationalisation of 11.1% of the total workforce in Malaysia and Indonesia, which cost it RM443.3 million. The Malaysian and Indonesian markets make up 90% of the group's total workforce.
CIMB has set a target of reducing 30% cost for its investment banking business across Asia Pacific. With the exit from the Australia market as well as the scale down of its stockbroking business in North Asia earlier, CIMB recorded cost savings of RM400 million in total.
"Going forward, we're reviewing our investment banking business in Asean, we'll relook the profitability. Having said that, we're close to the 30% (cost reduction target) now based on what we did earlier," Zafrul said.
"We're looking for cost to reduce by RM500 million (for the group) next year," he added.
As for the cost-to-income ratio, Zafrul said the group is working towards achieving the 50% target versus 70%, as at the first quarter this year.
"Hopefully next year will go down to 55%," he noted.
Zafrul stressed that CIMB strives to improve its income side, as measured in return on equity (ROE), expected to be 10% this year.
"It (The ROE target) depends on economic conditions, the challenge is to make sure that the whole region performs," he explained.
Meanwhile, Zafrul said the group has started the search for new CIMB Islamic Bank CEO following the resignation of Badlisyah Abdul Ghani announced on July 14.
"We're now in the process of looking for candidates...We're looking for both internal and external candidates...We hope to make recommendation to the board by end of August," he said.
Badlisyah's resignation, effective August 15, came a week after his Facebook posting on the Wall Street Journal article that prompted CIMB chairman Datuk Seri Nazir Razak to order an internal inquiry on him.