CIMB sees worst over for Indonesian unit after 1QFY15

by **Cals** Tue 03 Mar 2015, 00:21

CIMB sees worst over for Indonesian unit after 1QFY15

By Supriya Surendran / The Edge Financial Daily | March 2, 2015 : 10:13 AM MYT

[size=12][You must be registered and logged in to see this image.][size=12]Tengku Zafrul says the challenges faced by the group in Indonesia are on a macroeconomic level. Photo by Mohd Izwan Mohd Nazam[/size]

KUALA LUMPUR: CIMB Group Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) is confident that the asset quality concerns that have bogged down the performance of its 97.94%-owned Indonesian unit PT Bank CIMB Niaga Tbk for its financial year ended Dec 31, 2014 (FY14) will improve after the first quarter of this year (1QFY15).

CIMB (fundamental: 1.35; valuation: 2.1) saw its net profit plunge 80.7% for its fourth quarter ended Dec 31, 2014 (4QFY14) to RM200.32 million from RM1.04 billion a year ago, while revenue fell 3.29% to RM3.67 billion from RM3.8 billion in 4QFY13. Its return on average equity (ROAE) for the quarter was 0.6%.

Describing the quarterly performance as the “worst ever from a ROE (return on equity) perspective”, CIMB’s newly-appointed chief executive officer Tengku Datuk Zafrul Tengku Abdul Aziz said it was dragged down by its Indonesian operations.

“However, it works both ways. When our Indonesian operations pick up, they will definitely drive back the group’s performance as [in the past] CIMB Niaga contributed 30% to our operations. And in terms of a Malaysian bank with an exposure to Indonesia, we are the biggest,” he told a news conference to announce the group’s 4Q and FY14 financial results last Friday.

He said the challenges faced by the group in Indonesia are on a macroeconomic level, looking at the tight liquidity level and the recent change of leadership in the country.

“In terms of asset quality, there will be some concerns in 1QFY15 but I think the worst will be over after that quarter. In terms of loan growth in Indonesia, all segments have showed positive growth in FY14, together with deposits growth,” said Tengku Zafrul.

For the full year of 2014 (FY14), CIMB reported a 31.57% drop in net profit to RM3.11 billion from RM4.54 billion in FY13, while revenue fell 3.58% to RM14.15 billion from RM14.67 billion. The group’s FY14 ROE stood at 9.2%.

On the group’s key performance indicators for FY15, Tengku Zafrul said the group is focused on achieving an 11% ROE and a cost-to-income ratio of 55%.

“We are also looking at a high single-digit loan growth rate target, ranging from 8% to 9% for FY15,” he added.

On Feb 6, the group outlined its Target 18 (T18) plans and key organisational changes, with a mid- term target of achieving an ROE of 15%, common equity tier 1 ratio of over 11%, a cost-to-income ratio of below 50% and a 60% consumer banking income contribution by the end of 2018.

As part of the initiative, CIMB also announced its decision to close its offices in Sydney and Melbourne in Australia, following a strategic review of the group’s entire business and to align with its objective of reducing its Asia-Pacific investment banking and equities operating cost by 30% in 2015.

On a news report that the group plans to cut 50 jobs across Asia to trim costs, Tengku Zafrul said it has already cut 150, of which 103 of those jobs were from the shutdown of its Australian operations.

“Whether there are more job cuts coming, it is something we will continue to review in line with our T18 initiatives,” he added.

CIMB shares closed 12 sen or 2.06% lower at RM5.95 last Friday, giving it a market capitalisation of RM49.11 billion.

This article first appeared in The Edge Financial Daily, on March 2, 2015.
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