CIMB Group targets to reduce cost by around RM500m for FY20

CIMB group chief financial officer Khairul Rifaie and group chief executive officer Datuk Abdul Rahman Ahmad at the announcement of CIMB Group’s first half FY2020 financial results.

KUALA LUMPUR: CIMB Group Holdings Bhd aims to aggressively rationalise cost following the impact of the challenging economic environment and is targetting an absolute cost reduction of around RM500mil or 5% for full year 2020.

CIMB Group had on Friday announced a profit before tax (PBT) of RM910mil and net profit of RM785mil for the first half period ended June 30,2020.

It said this was down from RM3.56bil and RM2.70bil recorded respectively in the corresponding period last year.

“This translates to a lower annualised return on average equity (“ROE”) of 2.8% and net earnings per share (EPS) of 7.9 sen.

“The group’s performance was affected by the challenging economic environment caused by the Covid-19 pandemic, which led to modification loss arising from the moratorium given to borrowers, as well as elevated provisions due to macro-economic factors (MEF) and specific credit provisioning, ” it said.

In the second quarter ended June 30,2020, its net profit fell by 81.6% to RM277.08mil from RM1.50bil a year ago. Its revenue declined by 13.5% to RM3.86bil from RM4.46bil. Earnings per share were 2.79 sen compared with 15.60 sen.

CIMB Group also announced a modification loss of RM212.26mil. It also provided for expected credit losses on loans, advances and financing of RM1.46bil compared with RM329mil a year ago.

In the first half, its net profit was RM785mil, down by 70.9% from RM2.70bil in the previous corresponding period. Its revenue was lower at RM8bil compared with RM8.63bil.

Datuk Abdul Rahman Ahmad, group chief executive officer of CIMB Group said the subdued performance in 2Q20 came within expectations and was largely attributed to the impact of Covid-19.

“Moving ahead, we expect continued weaker performance for the remainder of 2020 in line with uncertain economic conditions, as we recognise elevated provisions arising from the impact of MEF under MFRS9 and take impairments on specific accounts outside Malaysia to strengthen our financial position.

“Our underlying business remains resilient, and we are pleased to see that loans and deposits grew 3.9% and 7.8% respectively, driving NII to grow by 6% YoY, excluding modification loss impact, ” he said.

“To mitigate the impact of the challenging economic environment, we aim to aggressively rationalise cost. We are pleased that cost on an absolute basis has already declined by 3.3% for 1H20, and we target an absolute cost reduction of around RM500 million or 5% for full year 2020.

Abdul Rahman said the group continues to be well-capitalised to withstand shocks through its prudent approach with a strong CET1 ratio and liquidity coverage ratio (LCR) remaining comfortably above 100%.

CIMB Group said the underlying business however, remains resilient with positive growth in gross loans and deposits and significant current account/ savings account (CASA) growth.

On a quarter-on-quarter (QoQ) basis, the group posted a PBT of RM196mil and net profit of RM277mil for 2Q, down from RM714mil and RM508mil respectively in the previous quarter.

CIMB Group said the 1H20 operating income declined by 7.3% to RM8.01bil from RM8.63bil year-on-year (YoY), primarily due to a 27.6% drop in non-interest income (NOII) to RM1.86bil versus RM2.57bil in 1H19 due to lower fee and trading income in line with weaker economic activity.

“However, net interest income (NII) grew by 1.4% YoY to RM6.15 billion, showing solid momentum despite the modification loss for the period and slight decrease in net-interest margin (NIM) to 2.29%, ” it said.

CIMB Group’s total gross loans grew by 3.9% YoY for 1H20, led by the consumer and wholesale banking segments, with Malaysia gross loans growing by 4.8%.

Commercial banking loans contracted slightly YoY in line with softer economic activity, and as the group took a more prudent stance in this segment in Indonesia and Thailand.

Total deposits grew by 7.8% YoY, driven by a 20.2% YoY growth in CASA, as the group placed greater emphasis on lower-cost deposits across all segments and operating countries.

This resulted in a continued improvement in the CASA ratio to 38.4% as at June 2020 compared to 34.4% last year.

As for asset quality, CIMB Group said the comprehensive global macroeconomic impact of Covid-19 entailed a more stringent focus.

“The group’s June 2020 gross impaired loans (GIL) ratio rose to 3.6% from 3.1% YoY, and the increase in loan provisions was mainly driven by sizeable impairments outside Malaysia as well as MFRS9-related MEF adjustments.

“Allowance coverage rose to 81.9%, while the group’s annualised loan loss charge for 1H20 stood at 1.32%, ” it said.

Segment performance

Group Consumer Banking 1H20 PBT declined by 38.7% YoY from a combination of the impact of the modification loss on NII as well as higher provisions owing to 2Q20 MEF adjustments.

Nevertheless, excluding the modification loss, the segment’s NII would have grown 0.5% QoQ compared to the 16.2% decline, despite the interest rate cuts during the period. Consumer NOII was weaker on the back of softness in wealth management and credit card fees. However, operating expenses continue to be kept under control with 1H20 costs declining 3.1% YoY.

Group Commercial Banking 1H20 PBT was impacted by a material impairment in 1Q20 as well as provision writebacks in 1H19. However, underlying performance remains robust with improved NII and operating expenses decreasing YoY. 2Q20 NOII was weaker as a result of slower trade activity due to economic lockdown measures.

Group Wholesale Banking 1H20 PBT declined due to significantly weaker market-related NOII as well as higher provisions arising from a material impairment in 2Q20 and the negative impact of MEF adjustments. The 5.4% YoY growth in corporate loans drove the 9.9% improvement in segmental NII, while overhead expenses were 11.1% lower YoY.

Group Ventures, Partnerships & Funding (GVPF) 1H20 PBT was lower largely due to a contraction in NII arising from interest rate cuts during the period and the absence of a one-off gain from the sale of our Malaysia equities business in 1H19.

Operating expenses increased 21.4% YoY due to higher expenses at Touch ‘n Go and CIMB Philippines. Encouragingly, both TNG Digital and CIMB Philippines have seen significant traction in registered users and customers at over 10 million and 2.4 million respectively.

CIMB Islamic 1H20 PBT was also impacted by a combination of the modification loss and profit rate cuts on Net Financing Income (NFI), as well as higher provisions owing to the MEF adjustments in 2Q20. Reduced capital-market activity due to the slower economy impacted fee-related income, resulting in lower Non-Financing Income (NOFI).

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