PETALING JAYA: CIMB Group Holdings Bhd is adopting a cautious outlook of its net interest margin (NIM) this year in view of the re-pricing of deposits across all its geographical markets.
NIM is a measure of the difference between the interest income generated by banks and interest paid out to depositors. A wider NIM indicates higher earnings for banks.
Funding cost pressure has continued to intensify for the group in the fourth quarter of last year (4Q22) on the back of a higher deposit competition, among others.
UOB Kay Hian (UOBKH) Research said the banking group’s management stated they were cautious of the NIM outlook this year, which implied the group’s NIM could peak in 4Q22 and in 1Q23.
The research outfit noted CIMB’s management has indicated that the strong NIM expansion from Singapore and Indonesia is likely to have peaked while the repricing of deposits across all its geographical markets would gain prominence throughout 2023, weighing down on NIM.
“In addition, management believes that even if deposit competition were to peak in 1Q23, the current high deposit rates could remain protracted for most of 2023, leading to elevated funding cost as deposits will continue to reprice upwards throughout 2023.
“We make no changes to our current NIM assumptions of a rise of two basis points (bps) for 2022 and a decline of two bps for 2023. We expect a single 25 bps overnight policy rate hike in March this year and for no further hike for the rest of 2023,” it noted.
Funding cost pressure continued to intensify in 4Q22 on the back of higher deposit competition, repricing of time deposits following the series of interest rate hikes, and year-end competition for wholesale deposits.
That said, UOBKH Research said the banking group’s management has stated NIM remained relatively stable sequentially in 4Q22 as strong NIM expansion in Singapore and Indonesia was sufficient to offset higher funding cost pressure.
Given the concerns of a macroeconomic slowdown and intense deposit competition, CIMB group indicated loan growth is not a key priority in 2023 and would only grow in segments that exhibit stronger asset quality profiles.
That said, judging from the current loans approval pipeline, CIMB’s management has retained its 6% to 7% loan growth target for 2022 which is still well above its assumption, the research house said.
“As such, despite an expected slowdown in 2023, we make no changes to our current 2023 loan growth assumption of 5% for now given our more conservative assumptions,” it said.CIMB’s loans under repayment assistance have remained stable at 3% of group gross loans. In terms of delinquency rate on loans under repayment assistance, it remains relatively low at 6% of loans under repayment assistance (0.18% of group loans).