CIMB GROUP HOLDINGS BHD

By Maybank IB Research Hold (downgraded) Target price: RM7.70

WHILE CIMB Group Holdings Bhd’s loan growth is expected to pick up in 2018, its net interest margin (NIM) will likely compress despite the recent overnight policy rate (OPR) hike.

According to Maybank IB Research, CIMB will likely record a total loan growth of 4.4% for the financial year of 2018 (FY18), as compared to its forecast of 1.9% in FY17.

As for NIM, it is projected to contract by approximately three basis points in FY18.

“Corporate lending had been slow to pick up in 2017 and thus, group loan growth would have been relatively flat last year.

“Early indications, however would be that the drawdowns have started and coupled with stronger loans growth in Indonesia and Thailand, 2018 group loan growth is likely to be higher.

“We believe that loan growth will be in the mid to high single digit range. On the flip side, however, margins are still likely to compress despite Jan 25’s OPR hike,” said the research house in a note.

CIMB’s credit costs are still expected to trend lower, moving forward, according to Maybank IB Research.

Credit costs have trended down last year and are expected to continue the decline in 2018, despite factoring in the MFRS9 impact.

CIMB’s domestic asset quality remains firm, while CIMB Niaga’s credit cost is expected to drop below 200 basis points in 2018. As for the first nine months of FY17, CIMB Niaga’s stood at about 230 basis points.

“All in, management expects 2018 credit costs to be lower compared to 2017, despite the implementation of MFRS9.

“Overall, this is in line with our expectations whereby we see the group’s credit cost declining to 58 basis points in 2018 from 65 basis points in 2017,” said the research house.

Maybank IB Research has downgraded its recommendation on CIMB to “hold”, but left the target price unchanged at RM7.70.