Bank to continue investment strategy when need arises

ALMOST 18 months into the job as CIMB group chief executive, Tengku Datuk Seri Zafrul Aziz says a lot of what he had set out to do to consolidate its operations has been completed.

However, the country’s second largest bank continues to face challenges in the current weak and uncertain economic environment.

Below are excerpts of an interview with StarBizWeek.

Can we expect more job cuts at CIMB?

I have to be honest, I can’t say that there will be no job cuts.

We will remain flexible and nimble, as our priority is to ensure that we have the right cost structure in place.

However, we will also invest if there’s a need to. For example, we will be hiring a new team for our Vietnam operations.

We are on track to commence operations in Vietnam by the end of this year. Vietnam is one of the bright spots in Asean and we are building a business there for the long-term.

We will adopt an organic strategy in line with what we have done in markets like Cambodia and Singapore where we built the consumer and commercial banking business from scratch.

There will be job increases in Vietnam and also in the Philippines where we have applied for a licence.

How long is the low loan growth environment going to be around?

It depends on the economy... if the economy bounces back, so will loan growth.

Loans are still growing even now, but it will still be single-digit growth in line with the whole industry.

There is still bad news out there. China is growing but slower, commodity prices have not really come back although oil prices have stabilised.

There are countries in the region that are showing signs of recovery like Indonesia, the Philippines and Vietnam.

Loans growth will return when the economy recovers. I believe the days of double-digit loan growth will come back.

Can you elaborate on the Sompo deal?

This is the first such collaboration for CIMB or any Malaysian bank where we have entered into a multi-country strategic bancassurance partnership. It is a long-term (over 15 years) strategic deal where CIMB will distribute Sompo’s non-life insurance products across our core markets of Malaysia, Indonesia, Thailand and Singapore.

CIMB will stand to make an incremental RM1bil in income over the first five years of this partnership. Beyond this initial five years, the bank will also share in the economic upside besides the regular commissions generated from this joint business.

We estimate that a further incremental RM2bil to RM3bil will be generated for the bank over the full course of the partnership.

Hopefully, after five years, there will be some growth.

The Sunlife and Sompo deals will help to improve our T18 cost-efficiency objectives. For example, the Sunlife and Sompo deal will provide an annual cost-to-income ratio (CIR) improvement of about 60 to 80 basis points for the next couple of years.

Were there other bidders for the Sompo deal?

It was a tough fight, but Sompo showed its hunger and it is long-term. It will open the doors for other banks adopting the same model. The other one is Citigroup which tied up with AIA to sell life insurance via Citigroup’s branches in Asia, but in general insurance, we are the first.

Cost is an important issue for you. How is that coming along?

Our CIR in January 2015 stood at 59% and we

We will remain exible and nimble, as our priority is to ensure that we have the right cost structure in place.

closed financial year 2015 (FY15) at 55.6% for about RM800mil savings.

This year, we will continue to manage costs and our target is to bring our CIR to 53% for 2016.

Capital-wise, we can achieve the CET-1 target by 2016 as opposed to our initial target of 11% by FY18.

We reached 10.6% in the first quarter of 2016. This is a positive.

Once the CET1 goes up, the business should grow in tandem?

When CET1 goes up, CIMB will have additional capital to grow its business.

Capital is among the biggest issues facing banks today. It was with us initially too.

It is not easy to keep growing and capital is important. Last round, sentiment was affected a bit, as people were worried about our provision levels as these eat into capital. We showed that we can take the hit in Indonesia.

How about divestments?

We sold our stake in Indonesia’s PT CIMB Sun Life – that’s the last life insurance company that we have. This is part of our non-core asset divestment exercise... and with this, we do not do the manufacturing of insurance anymore.

The disposal was for 550 billion rupiah or RM1 69mil and we will gain RM140mil. This is a good return.

We are going to close the deal early next month and the gain would be reflected in the third quarter.

Do you need to have control of a brokerage as you do now?

Many parties have approached us but we have yet to decide on the structure.

The trend is that there is no need for control. Many regional banks like Daiwa and RBS have reduced their stakes in the brokerage business.

Interestingly, Malaysian banks are the only ones having a big presence in the Asean brokerage business and the two biggest brokers in Singapore were bought by Malaysians.

What has been done since the highly-publicised money transfer incident involving your chairman?

We have put into place measures to strengthen internal rules and processes to make sure that it does not happen again.

We engaged Ernst & Young to conduct a review on the matter. Our chairman has also passed the fit and proper test.

There was nothing wrong with our system, but as we have previously said, it was more of an administrative shortcoming.

What kind of work culture is there at CIMB?

I think CIMB has a driven-culture. Last year, we started the year with 45,000 employees and closed the year with 40,500 people.

There was a 4.500 headcount reduction from the MMS exercise and normal attrition.

That’s about 10% fewer employees yet we reached our highest ever revenue last year.