CIMB warns that second half will be tough

by **Cals** Sun 26 Jul 2015, 02:54

CIMB warns that second half will be tough

KUALA LUMPUR: CIMB Group Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard), which posted a 45.6% drop in net profit in the first quarter ended March 31, 2015 (1QFY15), said the second half of 2015 will remain “tough” due to the challenging economic conditions in Thailand and Indonesia where it has a presence.
However, its group chief executive officer (CEO) Tengku Datuk Zafrul Tengku Abdul Aziz expects the second half will perform much better than the first half, adding that CIMB is “still on track” to achieve its return on equity (ROE) of 10% for the current financial year ending Dec 31, 2015 (FY15).
Tengku Zafrul said while the cost measures being taken by the group is “on track”, the challenge is to deliver income, especially its business in Indonesia which had dragged the group down in 1QFY15.
“The challenges are bigger in Indonesia and Thailand for us. Malaysia is stable, not showing signs of weakness or improvement,” he told reporters at the launch of the CIMB Bumiputera Vendor Development Programme yesterday.
He said the group has yet to achieve its cost-to-income ratio target of 50%. As at March 31, 2015, Tengku Zafrul noted that the cost-to-income ratio stood at 57%-58%.
He added that it remains “difficult” for the group to achieve its income target during the rest of the year, given the macroeconomic challenges across the region.
According to its Target 2018 (T18) initiatives announced in February this year, CIMB expects to achieve the following financial targets at the end of FY18 — ROE of more than 15%, common equity Tier 1 ratio of more than 11%, cost-to-income ratio of less than 50%, and for consumer banking to contribute some 60% of its income.
CIMB’s net profit nearly halved to RM580.12 million in 1QFY15 from RM1.07 billion a year ago, mainly due to higher corporate loan provisions from Indonesia. Revenue for 1QFY15 rose 4% to RM3.68 billion from RM3.54 billion in 1QFY14.
Moving forward, Tengku Zafrul said there will be no more mutual separation scheme (MSS) for the group.
CIMB and PT CIMB Niaga Tbk had announced early this month that they have completed a MSS exercise, which saw the rationalisation of 11.1% of the total workforce in Malaysia and Indonesia. While the group will incur RM443.3 million in MSS costs, the resulting savings from the headcount reduction is estimated to be RM291.6 million per year.
Meanwhile, Tengku Zafrul said the group is still looking for a suitable candidate internally and externally to replace Badlisyah Abdul Ghani who is resigning as the CEO of CIMB Islamic Bank Bhd effective Aug 15, 2015.
He said the management is finalising the list of candidates and will make recommendations to the board by end-August.
Badlisyah had recently claimed in his Facebook posting that banking documents released by The Wall Street Journal allegedly showing transactions of US$700 million (RM2.66 billion) of 1Malaysia Development Bhd (1MDB) funds into the personal accounts of Prime Minister Datuk Seri Najib Razak were false.
He claimed, among other things, that the Swift code in the document did not match that of the originating New York-based Wells Fargo Bank.
However, later the same evening, Badlisyah released a press statement, admitting he was wrong in his analysis of the documents and that the opinions expressed on his Facebook page were strictly his personal opinions.
In an Instagram post on July 8, 2015, CIMB group chairman Datuk Seri Nazir Razak had apologised and said Badlisyah should not have commented on the documents, as it was a technical matter.

This article first appeared in The Edge Financial Daily, on July 24, 2015.