This article first appeared in The Edge Financial Daily on January 16, 2019

KUALA LUMPUR: CIMB Group Holdings Bhd’s 98.43%-owned subsidiary CIMB Thai Bank PCL’s net profit for the fourth quarter ended Dec 31, 2018 (4QFY18) fell 98.2% to 6.9 million baht (RM886,469) from 384.9 million baht a year ago, on higher operating expenditure.

In a statement filed with Bursa Malaysia yesterday, CIMB Thai president and chief executive officer Kittiphun Anutarasoti said the group saw a 9.6% increase in operating expenses to 8.34 billion baht in 4QFY18, mainly from a higher personnel cost in line with the bank’s “Fast Forward” expansion strategy and a loss on the sale of properties. This resulted in a higher cost-to-income ratio of 61.7% in 2018 compared with 57.9% in 2017.

The group’s net fee and services income for 4QFY18 also fell 7% to 1.81 billion baht due to higher fees and service expenses. However, net interest income for 4QFY18 was up 5.3% year-on-year (y-o-y) to 10.74 billion baht, while provisions for bad and doubtful debts and impairment losses declined 2.6% to 4.92 billion baht. Income tax expenses more than doubled to 264.3 million baht in 4QFY18, further eroding the group’s profitability.

The weak quarterly earnings dragged the group into the red for FY18, posting a net loss of 804.28 million baht compared to a net profit of 71.39 million baht in FY17. This comes in the absence of a tax credit of 70 million baht in FY17. Net interest margin over earning assets stood at 3.71% in FY18, compared with 3.89% in FY17, as a result of a lower yield on earning asset.

As at Dec 31, 2018, CIMB Thai’s total gross loans stood at 227.8 billion baht, up 6.9% y-o-y. Deposits were at 234.3 billion baht, an increase of 6.5% from 220.1 billion baht at end-December 2017.

The modified loan-to-deposit ratio was higher at 97.2% compared with 96.8% as at Dec 31, 2017. Gross non-performing loans (NPL) stood at 9.9 billion baht, with a lower gross NPL ratio of 4.3% compared with 4.8% as at Dec 31, 2017, thanks to more efficient risk management policies, an improved asset quality management and loan collection, as well as the sale of some NPLs in 2018.

CIMB Thai’s loan loss coverage ratio increased to 107% as at FY18 from 93.2% as at FY17. For FY17, CIMB Thai contributed 13% of CIMB Group’s net interest income.