CIMB optimistic on FY17, expects stable loan growth

KUALA LUMPUR: CIMB Group Holdings Bhd, which posted a record net profit and revenue for the financial year ended Dec 31, 2016 (FY16), is optimistic on FY17 on the back of sustainable loan growth, continued cost controls and expected improvement in provisions.
Group chief executive Tengku Datuk Seri Zafrul Aziz said it expects a loan growth of 6%-7% this year, similar to last year’s. Loan growth grew 8.7% last year on the back of Malaysia loans expanding 10.5% year-on-year in FY16. Stripping away the foreign exchange (FX) effect, CIMB’s loan growth was 6.4% in FY16.
“This year we expect the ringgit to stabilise so there won’t be any FX effect on loan growth. It will be relatively flat year-on-year,” he said at a press conference after announcing its FY16 financial results here yesterday.
Zafrul said the loan growth for CIMB’s Malaysian business grew ahead of the industry’s in FY16 and it should continue to be in the region of 10% for Malaysia this year, being in a positive correlation with economic growth.
CIMB will continue to instill cost discipline across all businesses to achieve its T18 target cost-to-income ratio (CIR) of 50% by end-2018. It is targeting a CIR of below 53% in FY17, after CIR improved to 53.9% in FY16 compared with 55.6% in FY15, in line with the improved revenues and strict cost control measures.
“As long as we continue to grow income faster than cost year-on-year, and we’ve seen that through consecutive years of positive jaws, you’ll see continued improvement in CIR,” he said, adding that it is investing more on digital banking to improve CIR as it improves productivity.
CIMB expects its net interest margin (NIM) to compress by 10bps this year, mostly due to its Indonesian business. CIMB’s NIM was marginally lower at 2.63% for FY16 mainly driven by higher cost of deposits in Malaysia. It is also targeting a return on equity of 9.5% for FY17.
Zafrul said the bank was tempered by higher provisions in Singapore and Thailand last year. He said Singapore was impacted by the oil and gas sector, while Thailand was impacted by the rice sector.
“We expect provisions in Thailand and Singapore to be lower than FY16,” said Zafrul, adding that Indonesia’s profitability had grew 500% mainly because of lower provisions.
Meanwhile, Zafrul updated that CIMB is finalising negotiations with China Galaxy Securities Co Ltd on its 50:50 joint-venture stockbroking business, which is expected to complete by April.
CIMB saw its Q4 net profit rise 4.7% to RM854.39 million in the fourth quarter ended Dec 31, 2016, from RM825.74 million a year ago from improved net interest income. Its revenue jumped 6.7% to RM4.31 billion compared with RM4.04 billion in the previous year’s corresponding quarter.
For the full year FY16, its net profit surged 25% to RM3.56 billion from RM2.85 billion in FY15, driven by continued momentum in the consumer franchise. Revenue rose 4.3% to RM16.07 billion compared with RM15.40 billion in FY15.