CIMB maintains loan growth, ROE targets

KUALA LUMPUR: CIMB Group Holdings Bhd, whose second-quarter net earnings dived 32.65%, is still maintaining its 10% loan growth and 11% return on equity (ROE) forecasts, on diminishing concerns over provisions, from its overseas markets.
This is in contrast to its peer Malayan Banking Bhd (Maybank), which revised downward its full-year forecasts for loan growth and ROE on the back of a challenging economic outlook.
In the first six months, CIMB’s ROE was at 8.7%, while its loans portfolio grew 12.2% excluding foreign exchange fluctuations.
CIMB Group CEO Tengku Datuk Zafrul Tengku Abdul Aziz expects the group to deliver better financial performance in the second half as provisions are believed to have peaked in the first half of the year.
Despite an expected softer capital market in the second half continuing to affect the investment banking business, he pointed out that the volatility could help its treasury business offset some of the impact.
Tengku Zafrul said the non-performing loan outlook is still positive for Malaysia, without seeing any pressure in terms of asset quality but remains cautious on the Indonesian market given the uncertainties in the local economy.
He acknowledged that it will be a “difficult task” to achieve its ROE target given the current market conditions, but said that the group is “on track” for its operating income and expenses.
“Our concerns are at what level the provisions will be at, especially for Indonesia and to some extent Thailand,” he told a press conference last Friday.
“For Thailand and Singapore, we’re little more positive in the second half. We’re on track in terms of operating income and cost, but we need to be mindful of provision level, with concern more in Indonesia. Malaysia is quite well,” he added.
On net interest margins, Tengku Zafrul expects a compression of 20 basis points compared with last year as market conditions have stabilised.
He said the group is comfortable with the current liquidity and capital position after having done stress tests on the ringgit, crude oil and palm oil.
“We have no plans to issue new shares or do a rights issue, it’s also not the right time to do a capital issuance given the market situation,” he added.
As the interest rate is expected to be maintained at the current level, Tengku Zafrul is of the view that it will not have a significant impact on loans growth, but with a tougher second half, it will add more pressure on its targets.
CIMB’s net profit tumbled 32.65% to RM639.75 million for the second quarter ended June 30, 2015 against RM949.94 million in the previous corresponding period, mainly due to higher provisions in Thailand and Indonesia.
Revenue for the quarter under review, however, expanded 12.51% from RM3.41 billion to RM3.83 billion.
CIMB has proposed an interim dividend of 3 sen per share.
For the first half, it posted a 39.5% drop in net earnings to RM1.22 billion against RM2.01 billion over the same period last year. Excluding exceptional expenses of RM518 million (RM202 million in restructuring expenses and RM316 million from the mutual separation scheme), its business-as-usual net profit would have only declined 17.7%.
Six-month revenue was up 8.19% from RM6.95 billion to RM7.51 billion.
Asked on regional expansion plans, Tengku Zafrul expects the group to start operating in Vietnam within a year after obtaining approval in principle to offer banking services in Vietnam this month.
“We’ll also continuously look at opportunities in the Philippines,” he said. With the latest venture into Vietnam, CIMB is now left with the Philippines to complete its presence in Asean.
On a separate note, he added the resignations of CIMB Bank CEO Datuk Sulaiman Mohd Tahir and earlier CIMB Islamic Bank CEO Badlisyah Abdul Ghani have no impact on the group’s business operations.
“We’ve started the process of looking for replacement, we hope to announce in due course ... We hope to finalise the CIMB Islamic Bank CEO sooner,” he said.