This article first appeared in The Edge Financial Daily on April 23, 2019

The article has been updated for accuracy.

KUALA LUMPUR: While all eyes are on the central bank’s next move regarding the overnight policy rate (OPR), the country’s second largest bank CIMB Group Holdings Bhd is not anticipating an interest rate cut in the upcoming Monetary Policy Committee (MPC) meeting scheduled for May 6 and 7.

Despite the FBM KLCI falling to a two-year low of 1,619.73 points last week, its group chief executive officer Tengku Datuk Seri Zafrul Aziz is still “quite optimistic” about the overall market’s performance for the full year, noting there is correction in terms of flows from the emerging market.

“We are maintaining our forecast for the economy to grow about 4.5% to 4.7% and we are also looking at ringgit to strengthen to around 4.10 [against the US dollar],” said Zafrul. At the time of writing, the ringgit was at 4.1365 against the greenback.

While trading sentiment was weighed down for almost the whole of last week by fears that Malaysian government bonds could be removed from FTSE Russell’s index, Zafrul said Malaysia’s performance on the bond index is still positive year to date.

“I’m quite confident that we will still be included [in the index]. We believe that now with the level of engagement with the government, Bank Negara Malaysia and all the players. I’m sure that they will agree that we will still be in the index,” he added.

In the worst case, Zafrul said there are still a lot of benchmark indices that investors can use.

“But the benchmark must be accurate... and for Malaysia, if [it was] to be excluded [from the FTSE Russell index], would not be a true benchmark, given that Malaysia is quite a big player in the bond market,” said Zafrul.

“We’ve seen the worst already,” said Zafrul, adding that investors will continue to be cautious, and will take a wait-and-see approach prior to FTSE Russell’s decision.

Meanwhile, on the bank’s operational side, Zafrul said CIMB is allotting RM900 million in capital expenditure for the financial year ending Dec 31, 2019 (FY19), to be used to enhance its information technology (IT) and operations.

In comparison, the bank spent some RM500 million last year on a business-as-usual (BAU) basis.

“Basically, under our Forward23 programme we have incremental expenditure of 4% which translates into about RM400 million increase in costs related to IT,” said Zafrul.

“This would be on top of the RM500 million we would spend BAU. So effectively over 60% increase for this year,” he added.

Zafrul told reporters after the group’s annual general meeting here yesterday that this is the reason that the bank is expecting to expand its return on equity for Forward23 to 12% by 2023.

Nearly four months in the year, Zafrul noted that the bank is still maintaining its loan growth target of 6% to 7% in Malaysia.

“We are quite cautiously optimistic that we will achieve the target given the performance that we have seen in the first quarter,” said Zafrul, adding that the bank is dependent on the performance of Malaysia’s general economy which is still expected to grow at 4.5%.

Additionally, Zafrul said the bank will be planning for at least three initial public offerings (IPOs) by the end of this year, versus none in 2018.

Declining to disclose further details, he only noted that the IPOs are within the consumer and infrastructure sectors.

CIMB shares were up 10 sen or 1.97% to close at RM5.17 yesterday, bringing its market capitalisation to RM49.45 billion.