CIMB’s separation scheme costs RM443mil

Job cuts in Malaysia and Indonesia will bring about savings of RM292mil a year

KUALA LUMPUR: Malaysia’s second largest lender by assets, CIMB Group Holdings Bhd, has completed a RM443.3mil Mutual Separation Scheme (MSS).

In a filing with Bursa Malaysia yesterday, the group said the job cuts that involved 11.1% of its workforce in Malaysia and Indonesian banking arm PT CIMB Niaga TBK, could save RM291.6mil a year. This translated to an 18.2-month payback.

Of the 3,599 approved applications, the bulk were from its Malaysian operations with 1,891 employees, while the remaining were from Indonesia.

“The MSS was introduced as part of our continued efforts to enhance efficiency and productivity within the group.

“With the completion of the MSS, we are on track to meet the targets set in our cost-to-income plans outlined in our T18 strategy,” said the group chief executive Tengku Datuk Zafrul Tengku Abdul Aziz.

CIMB’s cost-to-income ratio – a measure of how tight a ship the bank runs - was among the highest in the industry at 57.6% for financial year ended December 2013.

Among the financial institutions with the lowest cost-to-income ratio are Public Bank at 30.7% based on its numbers for 2013 while Malaysian Building Society Bhd’s cost-to-income ratio is 21%.

Singapore’s DBS Group Holdings and Oversea-Chinese Banking Corp had a cost-to-income ratio of 44% and 42%, respectively in 2013.

Under the original T-18 initiative which was announced by Zafrul in February, CIMB’s cost-to-income ratio is to come down to less than 50% by 2018.

However, this target is likely to be achieved earlier than 2018 given the slowing income.

The biggest cut in the cost is to come from the investment banking arm that is to see a 30% reduction in overall cost across its operations in Asia-Pacific.

CIMB Group had embarked on the cost cutting exercise last month by offering workers in Malaysia and Indonesia MSS, which was aimed at enhancing its efficiency levels across the board.

The move came after the group shut down its investment banking branches in Sydney and Melbourne in February.

While the latest round of cuts was on a voluntary basis and expected to save the group more than RM500mil, half of the savings was expected to come from CIMB’s investment banking arm.

The group was also weighed down by its Indonesia operations, where PT Bank CIMB Niaga TBK was a dampener for the group’s overall performance last year.

The high non-performing loans due to the rapid rise in interest rates in Indonesia last year was cited as one of the causes for the sinking asset quality.

The group’s net profit plunged 32% from a year ago to RM3.1bil last year, largely due to lacklustre performance at CIMB Niaga, Indonesia.

The group expected to achieve a return on equity of over 15% in 2018 from 9.3% last year.

Earlier reports said that the group was targeting a 10% loan growth in 2015, and for Malaysia, in the high single-digit range.

CIMB Group has a workforce of over 40,000, the majority of them in Malaysia and Indonesia.

It is said that payroll accounted for 55% of the group’s total operating expenses in 2014..