Asset quality could impact Maybank and CIMB's operations in Indonesia

  • Corporate News
  • Tuesday, 21 Feb 2017

PETALING JAYA: Although Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd’s earnings via their subsidiaries improved in Indonesia last year there is still a concern that asset quality in the republic may impact earnings this year.

Analysts told StarBiz that it was still rather early to conclude that the worst is over for the two banking groups to register stronger earnings this year as asset quality could drag net interest margins (NIMs) which may dent earnings. 

Maybank and CIMB Group Holdings via PT Bank Maybank Indonesia Tbk and PT Bank CIMB Niaga Tbk showed improved in earnings mainly boosted by higher NIM and lower provisions.

AlianceDBS Research analyst Lynette Cheng agrees that concerns on asset quality among Indonesian banks are not over yet and may drag on till second quarter of 2017 unless gross domestic product growth picks up strongly. “We however caution that regulatory pressures may come back to push lending rates lower, exerting stress on NIM,’’ she noted.

Maybank Indonesia posted a strong set of financial results in the financial year ended Dec 31, 2016, with earnings surging 71% to a record  Rp1.9 trillion or RM650.38mil. Its strong growth in profit after tax and minority interest (PATAMI) versus  Rp1.14 trillion in FY15 was underpinned by sound net interest income (NII) growth, controlled cost management and better provisioning for the non-performing loans (NPLs). Maybank Indonesia NII increased by 10.8% to Rp6.6 trillion while NIM saw a 4.6% increase.

CIMB Niaga recorded a 387% growth in consolidated net profit for the financial year ended Dec 31, 2016. CIMB Niaga’s annual profit jumped to 2.082 trillion rupiah (RM694.6mil) -- or earnings per share of 82.83 rupiah -- from 427.9bil rupiah (RM142.8mil) in the preceding year.

This improved net profit came on the back of a 6.2% year-on-year (y-o-y) increase in net interest income to 12.09 trillion rupiah (RM4.0bil) and a 2% y-o-y rise in non-interest income to 4.23 trillion rupiah (RM1.4bil).

AlianceDBS Research, which is maintaining a hold rating for CIMB and Maybank, said in a note on Tuesday  both CIMB Niaga and Maybank Indonesia remain cautious for 2017. 

CIMB Niaga has guided for high single digit loan growth and NIM to converge to around 5%, as a result of the shift in focus to better quality loans as well as competitive pressures. Credit cost is expected to be lower y-oy, at around 200bps. 

There was no guidance on return on equity (ROE) but management points towards an improvement from the current 6% level, it noted. Meanwhile, Maybank Indonesia’s guidance appear more optimistic with ROE of 10-11%, loan growth of 10-12%, deposit growth of 8-10%, NIM compression of 15-20 basis points (bps) and credit cost of about 130bps.

Separately, Maybank Indonesia is planning to undertake a rights issue of Rp1.5-2trillion in the second half of this year.

“Assuming the average Indonesian rupiah/ ringgit rate in FY16, CIMB Niaga and Maybank  Indonesia’s FY16 net profit translates into approximately 19% and 10% of our CIMB and Maybank’s  FY16 group earnings, respectively,’’ it noted. 

Both Maybank and CIMB will announce their FY16 results on 23 Feb and 28 Feb, respectively.
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