CIMB set to meet target

It is expected to achieve RoE of 16% despite facing some challenges
PETALING JAYA: CIMB Group Holdings
is on track to achieve its return on equity (RoE) guided target of 16%
for the financial year 2013, despite net interest margin (NIM)
compression and expectation of higher overheads.
At a pre-results briefing with analysts, group deputy chief executive Renzo Viegas and deputy group chief financial officer Shahnaz Jammal assured that the group was progressing well although cost containment was still a challenge.
MIDF Research said in a report that despite NIM pressures, expectation of higher overheads due to the acquisition of Royal Bank of Scotland (RBS) assets, and that credit cost would normalise, CIMB Group was on track to achieve a RoE of 16% for 2013.
“Management
expects NIM compression to be buffered by asset growth and its overhead
expenses to be offset by income growth and via portfolio optimisation,”
banking analyst Kelvin Ong said.
He added, however, that the
management highlighted that the group was now more focused on cost to
income ratio (CIR) where in the past, attention was more on delivering
higher RoE.
“Management guided a NIM compression of between 10
and 15 basis points for financial year 2013. This will partly be
contributed by the CIMB Niaga's margin compression. Generally, NIM
pressures are felt across most markets that it operates in,” he pointed
out.
Alliance Bank
analyst Cheah King Yoong concurred that the NIM compression could be
steeper than the initial guidance of five to 10 basis points, dragged
by the Indonesia operations.
On CIR, Cheah said management
expected CIR to inch up this year compared with financial year 2012,
driven by restructuring charges, and full-year cost impact from RBS's
acquisitions.
In 2012, the group only accounted for six months
of cost incurred in RBS' Hong Kong operations and about one month for
its Australia operations.
He noted that CIMB completed the
acquisition of RBS' selective cash equities and associated investment
banking businesses in the Asia-Pacific region in April but its
associated revenue had so far dragged its respective costs due to the
gestation time involved for client acquisitions.
“We understand
that it could take about six months to complete the signing up of
clients to CIMB. Management guided that the RBS operations are expected
to break even by the end of this year.”
For the group's first
quarter 2013 results to be released on May 21, Cheah said: “We gather
there would be exceptional expenses to be charged off.”
They
include restructuring expenses on streamlining and amalgamating its
four consumer banking operations - retail and SME banking, credit
cards, unsecured lending and mobile banking; restructuring expenses
relating to its integration of RBS' selective cash equities and
associated investment banking businesses in the Asia-Pacific region
acquired last year; and amortisation expenses relating to intangible
assets at the holding company level.
“We understand that these
exceptional changes will be effectively offset against the group's
exceptional gains of about RM500mil on the disposal of its 51% stake in
CIMB Aviva.
“As such, there is no major hit to the group's bottom line on a net basis,” he said.