Solid liquidity position: Tengku Zafrul (left) and Group CFO Shahnaz Farouque Jammal Ahmad at the press conference to announce CIMB’s financial results.
KUALA LUMPUR: CIMB Group Holdings Bhd
expects its net interest margin (NIM) to remain stable this year amid easing pressure on funding costs and liquidity concerns.
The second-largest banking group by assets in Malaysia saw its NIM improve to 2.71% for the first six months of 2017 compared with 2.63% in the corresponding period last year.
According to CIMB Group chief executive officer Tengku Datuk Seri Zafrul Aziz, there would unlikely be further risk of NIM compression as the group continued to see healthy deposit growth, which helped maintain its solid liquidity position.
“We do not expect any further NIM compression; for the group level, NIM is expected to be where it is today for the rest of the year,” Tengku Zafrul said.
“Year-on-year (y-o-y), our NIM has actually improved, so we take (it as an indication that) for the full year, it will be relatively flat compared with last year,” he told a press briefing on CIMB’s financial results for the second quarter ended June 30, 2017 (2Q17) here yesterday.
CIMB’s net profit stayed above the RM1bil mark in 2Q17 on the back of firmer revenue. It has declared a higher interim dividend of 13 sen, which would translate into a payout ratio of 51.6% for the first half of the year (1H17).
Its earnings growth of 26.3% to RM1.10bil in 2Q17 from RM872.82mil in the corresponding period last year was driven by loan growth across segments, improvements in NIM and a better-performing capital market.
In addition, the group also reported good topline growth in consumer banking in Malaysia and Thailand, and in regional commercial and corporate banking businesses. During the quarter, CIMB’s earnings per share rose to 12.25 sen from 10.07 sen while its revenue grew 10.8% to RM4.33bil from RM3.90bil in the previous corresponding period.
For 1H17, CIMB’s net profit grew 35.3% y-o-y to RM2.28bil, or 25.56 sen, with an annualised return on equity of 9.9%. Its revenue rose 13.8% y-o-y to RM8.68bil in the period.
“Our consistent performance in recent quarters reflects our continuous focus on building sustainable growth, maintaining margins, managing cost and optimising capital,” Tengku Zafrul said.
For 1H17, CIMB’s 1H17 operating income grew 13.9% y-o-y to RM8.69bil, largely driven by a 15.9% growth in non-interest income in line with better capital market activity. The group’s net interest income for 1H17 rose 13.1% y-o-y from loans growth and improved NIM.
During the period in review, the group’s total gross loans (excluding the bad bank) grew 8.2% y-o-y, while total deposits grew 9.6% y-o-y. The group’s loan-to-deposit ratio stood at 92.4% in 1H17 compared with 93.5% in 1H16.
Tengku Zafrul said CIMB would remain on track to meet the group’s full-year loan growth target of 6%-7%, driven by its Malaysian operations.
“The Malaysian banking industry as a whole is expected to see a high single-digit growth this year... CIMB will track that growth,” he said, noting that loan growth in Malaysia would track the robust gross domestic product (GDP) growth of the country.
“We are optimistic that the performance for the rest of the year would be good for the Malaysian economy,” he noted.
Malaysia’s GDP growth accelerated to 5.7% in 1H17 from 4% in H1’16. CIMB expected Malaysia’s full-year GDP to grow about 5% compared with 4.2% in 2016.
Tengku Zafrul pointed out that CIMB’s loan growth for the Malaysian market alone had been strong, rising 10% y-o-y for H1’17.
However, he conceded that the group’s loan growth would face some challenges in Indonesia, Thailand and Singapore.
“Singapore’s economy has moderated, so we don’t foresee strong growth there. But in Indonesia, we expect it to be better than last year. In Thailand, it is slightly muted, as we are recalibrating the commercial banking sector,” he said.
Tengku Zafrul said Malaysia would continue to drive the group’s loan growth, as it has always been. He said loan growth is expected across all the three segments – consumer, commercial and corporate banking businesses – for H2’17.
On deposits growth, Tengku Zafrul said: “Deposit is growing faster than loan.”
He pointed out that CIMB’s liquidity coverage ratio at present stood at around the same level as that of the industry at 140%, which is well in excess of the regulatory minimum requirement of 60%.
“We are at a very comfortable level, so there’s no issue in terms of liquidity,” Tengku Zafrul said, adding that the group is expected to see a steady deposit growth for the remaining part of the year.
Overall, he said CIMB was cautiously optimistic for the second half of 2017, given the strong GDP growth for Malaysia and Indonesia, and the expected gradual improvement in Singapore and Thailand, all of which signal increased regional activities and improved capital markets.
“We will continue to chase growth, but we are mindful of the importance of managing costs and asset quality across all businesses. We will continue to focus on the 5Cs – capital, cost, culture, customer experience and compliance – and we are cautiously optimistic that CIMB is on track to meet its key financial targets for 2017,” he said.
