CIMB’s NOII weakness in M’sia to normalise in FY19

KUCHING: CIMB Group Holdings Bhd’s (CIMB) non-interest income (NOII) in Malaysia is expected by analysts to normalise in financial year 2019 (FY19) while also opining that lower operating expenditure (OPEX) and provisions will be a moderating factor for the group.

Following a meeting with the group’s chief financial officer, the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) after meeting with noted that the management expects there will be weakness in NOII in Malaysia due to the volatile market condition following the surprise 14th General Election (GE14) outcome.

“This had led to slower market activities from May to June,” it said.

MIDF Research recalled that NOII declined -6.1 per cent year on year (y-o-y) to RM2.37 billion in the first half of FY18 (1HFY18).

“We understand that corporates have delayed fund raising as it seek further clarity on the policy direction of the Government.

“As such, we believe that there could be some clarity after the announcement of Budget 2019 next week.

“Hence, we believe that the weakness in NOII in Malaysia will normalise in FY19.”

MIDF Research also recapped that the group managed to perform within its expectation in 1HFY18 despite the pressure to income.

As such, the research arm believed that there will be moderating factors to offset the weakness in income, namely in the form of lower OPEX and credit cost.

“Cost management initiatives will be accelerated. Meanwhile, credit cost is expected to come in at lower end of guidance of 55 to 60 basis points (bps), and may potentially be even lower than expected.

“This is expected to stem from some recoveries in addition to stable asset quality.”

On another note, MIDF Research projected that CIMB’s cost to income (CI) ratio will plateau in the next couple of years due to the group’s investment in digitalisation.

“Recall, the management indicated that the group will need to make investments in order to not only enhance its digital offerings but also streamline its processes.

“As such, it expects CI ratio to plateau around the 50 per cent level in the next couple of years.

“However, we believe that this is necessary as the group will need to keep up with its peers.”

Additionally, the research arm expected the investments in technology will result in cost savings such as improvement of CIMB’s branch network, lower personnel cost and lower customer acquisition cost.

“We believe that it is possible for CI ratio to trend downwards towards the mid-40 per cent level after the completion of its digital initiatives.

“Nevertheless, we opine that the group’s digital strategy may not have an immediate impact and can only assume that any benefit will be seen only in the medium term, i.e. three to four year period.”