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This article first appeared in The Edge Financial Daily on August 30, 2018

KUALA LUMPUR: CIMB Group Holdings Bhd, the country’s second largest lender by assets, expects to post a record net profit for its financial year ending Dec 31, 2018 (FY18), driven primarily by growth in its consumer banking segment.

CIMB group chief executive officer Tengku Datuk Seri Zafrul Aziz said its wholesale banking segment is also expected to pick up in the second half of the year, in tandem with the recovery in the capital market.

“The capital market activities have been dry in the first half of the year, and we see that they have picked up within the last two months. We are optimistic the second half of the year would be better,” he told a news conference to announce the group’s results for the first half ended June 30, 2018 (1HFY18) yesterday.

 CIMB reported a record net profit for both second-quarter (2QFY18) and 1HFY18 at RM1.98 billion and RM3.29 billion respectively, bolstered by a gain from the sale of its 20% stake in CIMB-Principal Asset Management (CPAM) and its 10% stake in CIMB-Principal Islamic Asset Management (CPIAM), which amounted to RM928 million.

 Excluding the RM928 million gain from CPAM and CPIAM, the group’s net profit in 1HFY18 came in at RM2.36 billion, 3.3% higher than that of RM2.28 billion in 1HFY17, while its annualised return on equity sans the CPAM and CPIAM gain was 9.7%.

Zafrul said the group is targeting a year-on-year (y-o-y) growth of 6% in its gross loans for the financial year ending Dec 31, 2018 (FY18). The group’s total gross loans (excluding the bad bank loans) grew by 3.4% y-o-y to RM329.9 billion in 1HFY18.

“Our loans actually grew by 7% in 1HFY18, but because of the foreign exchange effect, particularly the weaker rupiah, we are around 3.4%. Total deposits were 1.5% higher y-o-y at RM354 billion. The group’s loan to deposit ratio stood at 94% as of June 2018, compared with 92.4% as of June 2017.

CIMB group chief financial officer Shahnaz Jammal said the competitive fixed deposits market in Malaysia would not affect the group’s net interest margin (NIM).

“I don’t think there will be much impact for our Malaysian operations in terms of NIM. In Malaysia, NIM has been relatively flat and that is likely to be the case for the full year. In terms of liquidity and deposit competition, it is nothing unusual,” he said.

The group’s NIM – excluding the CPAM and CPIAM gain – slid to 2.52% in 1HFY18, compared with 2.71% in 1HFY17.

“The NIM compression you see on the group level is mainly because of Indonesia. For Malaysia, it is relatively stable,” said Tengku Zafrul.

Meanwhile, CIMB’s group’s gross impairment ratio remained unchanged at 3.2% as at the end of June 2018, with a higher allowance of coverage at 106.8%.

On whether CIMB could see a change in management given the changes in leadership at its major shareholder Khazanah Nasional Bhd, Zafrul said should there be any changes, this would be the decision of the board of CIMB and not one shareholder.

“We have a board and a NRC [Nomination and Remuneration Committee] that decides on changes at senior management ... it is based on performance and KPIs [key performance indicators], Khazanah will have a representative on the board to add its views.

“So, the board really is the one who decides on any changes in senior management, not one shareholder,” he added.

The group also proposed a first interim dividend of 13 sen per share amounting to RM1.22 billion for FY18, to be paid via cash or an optional dividend reinvestment scheme.

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