Affin Hwang: CIMB to see weak 2QFY20 performance due to severe hit in provisions

Affin Hwang: CIMB to see weak 2QFY20 performance due to severe hit in provisions
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KUALA LUMPUR (July 17): CIMB Group Holdings Bhd is expected to report a weaker performance for the second quarter ending June 30, 2020 (2QFY20) versus the preceding quarter, as the bank is likely to see higher expected credit losses (ECLs), according to Affin Hwang Capital Research.

In a note today, analyst Tan Ei Leen said net credit cost (NCC) may potentially rise above an annualised 120 basis points (bps), due to changes in macroeconomic factors such as economic growth and unemployment rate, which is also driving preemptive provisioning.

Moreover, the group is also taking the full hit from an oil and gas trading company, while asset quality pressure is rising in Indonesia.

“Management also cautioned that in the worst-case scenario, 2020 NCC could deviate from its guidance of 100-120bps to 150-200bps. This hypothetically implies a further 48%-97% downside risk from our 2020 net profit forecast, which assumes a 100bps NCC.

“Depending on how much ECLs are front-loaded in 2020, we may continue to see an elevated level of NCC in 2021,” wrote Tan in a note today.

She added that the management had indicated that its return on equity (ROE) guidance for 2020 could be revised down to 3%-5% from 9%-9.5% previously.

Other key takeaways include net interest margin (NIM) compression of 10-15bps year-on-year, which includes impact from the modification loss and the recent rate cuts in Malaysia and Indonesia.

The research house maintained ‘sell’ on CIMB, with a target price of RM3.00.

At 10am, CIMB shares fell two sen or 0.54% to RM3.65, giving a market capitalisation of RM36.22 billion.