CIMB to record better earnings in 2H17
KUCHING: CIMB Group Holdings Bhd (CIMB) will likely record a rebound in earnings during the second half of 2017 (2H17), backed by its operating strategies and stabilising assets.
The research arm of Affin Hwang Investment Bank Bhd’s research arm (AffinHwang Capital) expected a progressive improvement in CIMB’s net profit in the second quarter of 2017 (2Q17) with no major downside surprises.
“We believe that the group is on track to achieve at least a 31 per cent year- on-year (y- o-y) rebound in 2017 estimated net profit, as CIMB Niaga’s asset quality stabilises while at the group level.
“The focus remains on boosting operating income and achieving the T18 operating targets (costto-income ratio of less than 50 per cent; returns on equity (ROE) of 15 per cent),” it said in a note.
CIMB’s management has turned more optimistic on 2017 net interest margin ( NIM) guidance, with expectation that it will be flat yoy (2016 NIM of 2.63 per cent).
“The revised guidance came on the back of CIMB Niaga’s stronger NIM in 2Q17, a more robust corporate current account and savings account (CASA) growth and mortgage-repricing of 25 basis points ( bps) on selective accounts,” it added.
As for CIMB’s loan performance, AffinHwang Capital said the 2017 loan growth target remained unchanged, with a mid to high-single digit growth, with the anticipation of a stronger pipeline in 2H17 arising from capital expenditure in the corporate sector (non-government related) such as healthcare, education, utilities and logistics.
On CIMB’s credit cost, the research team noted that CIMB remained cautious of its overall credit recovery in 2H17 due to the high credit cost emanating from CIMB Niaga’s SME portfolio, some specific corporate accounts, and the auto and credit car books in retail banking.
CIMB maintained a 2017 estimated credit cost expectation of 60 to 65bps.
Meanwhile, on the impact of the adoption of the Malaysian Financial Reporting Standards (MFRS) 9, the research team believed there would be no major issues for Malaysian banks.
“The adoption of MFRS 9 on January 1, 2018 is not expected to have a major impact on the Malaysian books which could make use of the available regulatory reserves of RM1.4 billion to top up required amount for collective allowance,” it opined.
However, it noted that there would be a small gap for the Thailand and Indonesian units whereby there are more loans that fall into the Stage 2 category (whereby portfolio credit risk has increased significantly since initial recognition, hence, requiring a ‘lifetime expected credit losses’).
“Management estimates that there could potentially be a decline of 50bps impact on its CET 1 ratio on Day 1 of adoption.
“At this juncture, management is not topping up its regulatory reserves until more clarity is provided by Bank Negara Malaysia on the transfer of regulatory reserves to the collective allowance account,” it said.