CIMB’s Indonesia unit banks on better second half

CIMB’s Indonesia unit banks on better second half
Business & Markets 2013
Written by Esther Lee of theedgemalaysia.com
Tuesday, 27 August 2013 10:05

KUALA LUMPUR: CIMB Group Holdings Bhd is starting to feel the effects of the depreciation of the rupiah as contribution from its Indonesian subsidiary, which has been its source of growth, has remained flat for the first six months of this year compared to the corresponding period last year.

The contribution from PT Bank Niaga (CIMB Niaga) was 0.2% lower in the first half ended June 30 of 2013 financial year (1HFY13) compared to the same period last year due to the depreciation of the rupiah. Between 2011 and 2012, the growth was some 20%.

CIMB Group CEO Datuk Seri Nazir Razak is hopeful that Bank Niaga will do better in 1H13.

“Where we have less visibility is [at] CIMB Niaga. Last year, it grew by over 20% in ringgit terms. But for 1HFY13, it contributed less. That engine is a bit more difficult to predict, given dependency on the overall Indonesian economic conditions. But as it stands now, we are hopeful that CIMB Niaga will do better in the second half,” he told a press conference yesterday.

CIMB Niaga had been one of the group’s strongest growth areas in the past. In its 2012 annual report, CIMB Group disclosed that the Indonesian subsidiary contributed 32% to the group’s earnings.

The operating environment in Indonesia is not looking particularly bright of late. Rising inflation, a slowing economy coupled with the banking authority’ decision to tighten liquidity by raising interest rates have made it tougher for businesses to operate in the country.

Year-to-date, Bank Indonesia has increased the benchmark interest rate by 75 basis points.

CIMB Niaga’s net interest margins (NIMs) declined to 5.42% from 6.05% for 1H, the only subsidiary where NIMs fell, while NIMs for the other CIMB subsidiaries remained flat, said Nazir.

However, from a consolidated group perspective, the group’s net profit increased by 15% to RM2.44 billion on revenue of RM7.89 billion for 1HFY13.

Net interest income inched up 8.1% while non-interest income expanded by 20.1% due to the RM515 million one-off gain from the sale of 51% interest in CIMB Aviva in the first quarter ended March 31 (1QFY13).

The group’s profit before tax (PBT) would have come in at 0.7% lower year-on-year (y-o-y), if the one-off-gain and restructuring charges of RM200 million were excluded from the financial statements.

CIMB Group’s saving grace for 1H was its strong performances in Malaysia and Singapore consumer banks where PBT increased by 14.7% y-o-y.

It also saw improvement in its corporate banking’s PBT which gained 24.6% to RM769 million due to good growth in corporate lending, except in Indonesia.

“Earnings outlook for 2H, we will do better from an operational standpoint. Obviously, we are going into volatile markets, more challenging economic environments.

“In a way, this kind of condition separates the men from the boys. It is not for the faint-hearted. We have to be agile to manage situations, take advantage of opportunities and work harder for your dollars, or so to speak, than you have in the past,” said Nazir.

He highlighted that the bank has done relatively better in tougher times, based on historical experience.

“In 1HFY13, we showed good momentum in our Malaysia and Singapore consumer banks that was driven by many changes put in place last year. From the loan growth perspective, the numbers have improved overall despite contraction in corporate loan book in Indonesia — historically our strongest growth area.

“We have total credit growth of almost 14% and our Malaysia and Singapore consumer banks grew 14.7% in 1HFY13. We think the treasury markets will do better in 2H,” he said.



This article first appeared in The Edge Financial Daily, on August 27, 2013.