CIMB on track to achieve 8% growth in domestic loans

PETALING JAYA: CIMB Group Holdings Bhd’s domestic loans growth is on track to hit up to 8% this year but challenges remain in Thailand and Indonesia.

RHB Research Institute said CIMB’s domestic loans were growing above industry average.

However, growth in Indonesia and Thailand remained challenging due to “stillweak demand from small and medium enterprises,” it said in a report.

“CIMB’s Malaysian loan book is currently growing ahead of the industry and is on track for 6% to 7% year-on-year growth in 2018.

“Its retail loans are growing above industry average, helped by improvement in service and sales force, rather than price competition,” it said.

According to RHB Research, CIMB’s management has guided that net interest margins in the first quarter of 2018 will not be materially different from those in the fourth quarter of 2017.

“That said, management reiterated expectations for net interest margin (NIM) to narrow by five to 10 basis points in 2018, largely due to margin compression at CIMB Niaga.

“It expects NIM for its Malaysian operations to be stable, as margin expansion in the first quarter of 2018 would gradually taper off due to structural compression from its mortgage book,” it said.

RHB Research said management reiterated its guidance for 70 to 80 basis points reduction in Common Equity Tier-1 (CET1) on day one of adoption of the Malaysian Financial Reporting Standard (MFRS) 9.

“Of the total, around 50 basis points will be due to additional provisions for CIMB Niaga. That said, the hit on capital will be partially offset by capital uplift from the partial divestment of the group’s international cash equities business and CIMB-Principal.

“Beyond day one’s impact, the credit cost run-rate under MFRS 9 is said to be not too different from levels seen in 2017,” the brokerage said.

Citing management, RHB Research said a CET1 ratio of 12% is comfortable and sufficient to support the group’s business.

“Still, management feels the need to move towards 13% CET1, as this will be optically better when compared with regional peers. Hence, management is unlikely to turn off the bank’s dividend reinvestment plan for now.

“Instead, management may consider adjusting the discount for the new shares to be issued, to lessen the dilution impact.”

RHB Research said it did not foresee any negative surprises for the first quarter of 2018. It expects decent topline growth led by mid single-digit loan growth and mild NIM expansion.