CIMB’s income weakness could potentially moderate in 2HFY18 — Analysts
KUALA LUMPUR: CIMB Group Holdings Bhd's (CIMB) income weakness could potentially moderate in the second half of financial year 2018 (2HFY18), analysts project, while others anticipate a generally better outlook for the period.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), several factors that affected income in 1HFY18 included net interest income (NII) declining 4.8 per cent year on year (y-oy) due to net interest margin (NIM) contraction in Indonesia where it fell by 78 basis points (bps) y-o-y to 5.09 per cent.
“This resulted in group 1HFY18 NIM to decline by 19bps y-o-y,” it said.
MIDF Research highlighted that other factors included the NII decline which was also due to softer commercial and wholesale banking and non-interest income (NOII) decline of 6.1 per cent y-o-y due to slower capital market activity especially from the 14th General Election (GE14) impact in Malaysia.
“Nevertheless, we believe that income weakness could potentially moderate in 2HFY18 as capital market activity picked up in the third quarter of FY18 (3QFY18). While NIM may continue to be under pressure, the management does not expect NIM to compress further and may be maintained circa 2.45 per cent to 2.5 per cent level.”
Coupled with continuing gross loans growth, the research arm expected NII in 2HFY18 to recover and moderate the decline in 1HFY18.
Looking ahead, MIDF Research opined that CIMB is on track to achieve the group's targets.
“Loans growth will be supported by the consumer segment in Malaysia, and is expected to pick up with drawdowns from corporate loans.
“We understand from our previous discussions with the management that the corporates have not cancelled any of its approved loans but merely delaying the drawdown.
“Possible headwinds will be the weakness in income, but we expect it to moderate in 2HFY18,” the research arm said.
MIDF Research noted the management has indicated that cost will be contained and credit cost is expected to be better than targeted.
“We opine that the group perform well to mitigate the contraction in income by containing cost and provisions.
“We believe this will be the key for the group to achieve its return on equity (ROE) target for this year.
“Meanwhile, growth have been robust in Malaysia and recovery in Thailand will support the group's overall performance.”
Also on a positive note, Affin Hwang Investment Bank Bhd (AffinHwang Capital) maintained its view of a better operating outlook in 2H18 for the banking sector and hence CIMB, from the potential roll-out of more business-friendly policies under the new regime.
“This, we believe, will further boost business and consumer confidence in the country,” the research firm said.