KUALA LUMPUR (Oct 29): CIMB Group Holdings Bhd's 97.94%-owned Indonesian unit PT Bank CIMB Niaga Tbk saw its net profit for the first nine months ended Sept 30, 2014 (9MFY14) fall 28.5% to Rp2.3 trillion from Rp3.21 trillion a year ago, mainly due to a narrow increase in net interest income of 3.6% year-on-year on the back of higher interest expense.

It also attributed the lower net profit to a 21.5% dip in fee income due to slower foreign exchange and capital market businesses and a decrease in bancassurance fee income as a result of a regulation change, as well as increased provisions.

Its earnings per share for 9MFY14 declined to Rp91.4 from Rp127.8 a year ago, while return on equity shareholders’ fund stood at 11.2%.

In a statement this afternoon, CIMB Niaga said despite this, it maintained its position as the fifth largest bank in Indonesia with total assets of Rp227.74 trillion, a 4.4% increase from Rp218.22 trillion a year ago.

CIMB Niaga president director Arwin Rasyid said the nine months period continued to be a time full of challenges for the Indonesian banking industry.

"The higher interest rate environment led to higher interest expense and non-performing loans (NPL), while the distractions of the presidential elections have caused the industry to re-evaluate their strategy this year,” he said.

Nevertheless, the bank expects the newly-introduced cap on the deposit rates for BUKU III and BUKU IV banks to moderate the cost of funds for banks and bring back stability to net interest margins going forward.

As at Sept 30, 2014, CIMB Niaga’s loan book stood at Rp166.84 trillion, up 7.3% year-on-year.

Meanwhile, the slower macroeconomic conditions have had an impact on its asset quality, with CIMB Niaga recording a gross NPL ratio of 3.4% as at Sept 30, 2014 against 2.3% a year ago.

CIMB Niaga’s capital adequacy ratio was at 16%, up from 15.8% a year ago.

“We will continue to monitor asset quality and be mindful to grow the loans book based on a sustainable funding strategy. We expect a challenging fourth quarter but we are optimistic on the prospects for 2015, with new leadership in the government where we expect the economy and government spending to pick up,” said Arwin.