This article first appeared in The Edge Malaysia Weekly on October 19, 2020 - October 25, 2020

SHORTLY after his personal battle with the Covid-19 virus, Datuk Abdul Rahman Ahmad was appointed CEO of CIMB Group Holdings Bhd in June. It is far from being a cushy job, as he will have to continue to fight the pandemic — this time from the perspective of leading the country’s No 2 banking group. In a candid, nearly two-hour-long virtual interview, he shares with The Edge his thoughts on the challenges ahead as well as his plans to navigate the current crisis.

The Edge: You joined CIMB at a challenging time. How did this job land on you? And how has it been so far?

Datuk Abdul Rahman Ahmad: The job became vacant because my predecessor was asked to assume a cabinet position as the Minister of Finance. I think it was a surprise to the board of directors as well as shareholders. I received a call from a headhunter asking whether I was interested in participating in the [selection] process [for a new CEO].

After leaving Permodalan Nasional Bhd, I was chairman of Sime Darby. But I really felt that in the last stage of my career, I would like to contribute and deliver more at an executive level. That was why I [told the headhunter] I was interested and willing to be part of the selection process.

It was a highly rigorous process. I wasn’t the only candidate, there were others, both internal and external. So, that’s the background. It was independent and rigorously undertaken.

You are one of the few non-bankers who are CEO of a bank. Some people wonder how you passed Bank Negara Malaysia’s test to get the job.

I had to go through the same process. I was interviewed just like any candidate by Bank Negara. So, I have to say the rigorous process doesn’t apply only on the CIMB side but also on the regulator’s. Again, as I said, I had to go through interviews and, you are right, I’m a non-banker.

It has been challenging as a non-banker to learn the industry quickly. I believe I’m still learning and I have had to adjust and learn at the same time, as I joined at the start of a crisis.

It is not easy having to navigate a once-in-a-lifetime crisis. Because of the crisis, the performance of the organisation has been impacted, so dealing with that, handling that, has been challenging. But [at the same time], I am extremely excited; CIMB has a great legacy and a great franchise. So, to me, it’s a real privilege and honour. I am excited to take this job on and particularly to work with the great team we have in CIMB.

Is there a new strategy for CIMB?

The immediate thing I wanted to focus on was to assess the impact of Covid-19. First, looking at the impact from the lens of our borrowers, helping them navigate this challenging period. Second, the link to that obviously is our own performance because we will be impacted. So, we must also focus on what we can do to offset the impact.

We have highlighted that we are going to take very stringent cost measures, so we have targeted a RM500 million reduction for this year. By the halfway mark, we were already at 3.3%. We are one of the few banks that have come up with a [cost-cutting] target.

The third element is to really tighten our asset quality, grow our loans in a very judicious manner, but be very focused in terms of loan quality. These were the immediate things we did to face the challenges brought on by Covid.

At the same time, we need to build a clear strategy for the next three years. Two years ago, CIMB came up with a five-year strategic plan called Forward23. There were roughly five strategic pivots that we wanted to focus on. What we had to do was look at this plan based on the new lens of the current economic environment.

In coming up with the new strategy, we were very clear about a couple of things. First, we didn’t want to throw out the whole plan and come up with something completely different. To me, it is very important in any organisation that I join to have good continuity. Continuity is very important for any organisation.

The plan that we came up with is a refinement of the existing plan and is called Forward23+. It indicates that this is a continuation of the five-year plan developed previously.

Second, this plan has to take into account the new economic environment, which is significantly different. So, it has to incorporate the new norm.

Third, we are very clear that this plan needs to be more granular, more detailed at all facets of the organisation. We need both bottom-up and top-led [input]. So, we were very conscious to make sure this plan is adopted and embraced by everybody.

Finally, we call this a turnaround plan, not just a transformation plan. We recognise the situation we are starting from, that we are in a very challenging environment. So, we need to ensure the performance really improves compared with 2020. That is the guiding principle behind Forward23+.

We have kept most of the five key targets of Forward23; we have not shifted away from them. The time has been extended for one year: Forward23+ targets have been set to be delivered in 2024 — simply because we have just lost one year to Covid.

Our main target is to deliver the top quartile ROE, but you have to recognise that what this is will be determined by the economic growth of Asean over the next four years. If there is anything significantly different in Forward23+, it is that we want to be a focused Asean bank, not an Asean-focused bank.

How will we do this? We have five strategic themes (see chart in main story). If there is one area I hope to be able to improve on, it is delivering shareholder value, and this has been an issue with CIMB that we need to address. Our total shareholder return in recent years hasn’t been positive; we need to be able to reverse it, and this whole strategy is aimed at delivering or enhancing shareholder value.

Can you give any guidance on provisions over the next year or next four quarters?

We have given an indication that the credit cost for this year will range between 120 and 140 basis points for our group, which is considerably higher than in 2019, which was about 44bps. We believe that is manageable and something we have to take, partly to clean and strengthen our balance sheet, to emerge stronger post-pandemic.

From your stress tests, do you foresee any need for recapitalisation?

We are very strong in terms of capital, and liquidity remains extremely strong. The growth in deposits has been very strong as well and our CASA (current account savings account) ratio has grown. Our CET1 (common equity tier-1) ratio remains at 13%, so we are very comfortable. At the moment, we do not see any need for a capitalisation exercise.

The focus of your predecessor — Tengku Zafrul (TZ) — was relatively different from his predecessor Datuk Seri Nazir Razak (DSNR). DSNR’s focus was on investment banking and, when TZ took over, the focus shifted to consumer banking. So, what is CIMB’s direction now?

Our current portfolio is relatively diversified. It is probably one part corporate, one part wholesale, one part commercial and one part consumer. So, it is a pretty balanced portfolio. As a group, however, you would need to decompose it into different countries if you want to dig deeper.

For instance, if you look only at Malaysia, you are right: We are probably skewed more towards corporate and consumer, which means there is significant opportunity on the commercial side, the SME (small and medium enterprise) side. We are actually quite dominant on the wholesale side, and my predecessor successfully grew the consumer side, hence the opportunity. In Malaysia, we are very clear in our plan where we can double down.

In Indonesia, on the other hand, nearly 70% of the portfolio is corporate and commercial, whereas when we look at where the opportunity lies in Indonesia, it is really on the consumer side. Consumers are 24% of the portfolio. Given the last three years, it has done really well. So, the opportunity going forward is to grow faster or at least the same as the market.

The third element is what we can do across our network effectively. On the wholesale side, we can be a very strong sales player within Asean. But I’m very excited about the opportunity of ‘wealth’.

Currently, we have about 260,000 preferred customers across the region. We see that our ability to double this number is significant as Asean becomes more affluent and the opportunity is there. The Asean network will be able to provide the opportunity for individual sales in Indonesia and Malaysia. If you want to invest globally, we will be able to provide that because of our Asean network.

Is the group still driving growth the way it did in the past to get big deals and IPOs?

First, we recognise that our DNA effectively came from the investment bank. There were years we were pretty much profiting from the deals in those markets. But there are a couple of things ...

First, in terms of the investment banking side, we remain one of the leading banks — if not the leading bank — if you look at all the league tables that we are in. Second, I think we have to recognise that the industry environment is very different from before. The days of huge IPOs, huge M&A transactions in Malaysia are pretty much gone.

What I call origination or true-blue investment work as a portion of large banks, whether regional or international, has really shrunk. I think we have to recognise that the markets have moved and I don’t think it’s healthy for us to hope that the market will actually return.

Wholesale remains the fundamental strength of CIMB … and our strength (in that segment) is now treasury and markets. That remains a solid engine for CIMB.

We have lost some people and there have been changes. I think in all industries, we have to accept evolution. We are very confident. As you know, we have appointed Omar Siddiq to be our new CEO for a wholesale bank. His history basically was in CIMB and also wholesale in RHB. I’m very confident with this leadership that will be able to continue the growth of CIMB in terms of wholesale banking.

We have to move on. Life is like that. The industry gets disrupted, the industry changes. We have to be realistic and focus on areas where we can make a significant improvement and create value for our shareholders.

What’s your take on CIMB’s share price performance?

My belief is that CIMB shares are significantly undervalued. There is a reason we are trading at this level — simply because, from the perspective of the investment community, we have under-delivered in terms of return on equity. If you look at the leading banks that are trading above book value, their ROE are better than those of banks that deliver or are currently trading below book. My focus is simple: to improve the ROE. And I think, over time, the share price will reflect that.

CIMB missed its 9% to 9.5% absolute ROE target last year, although it technically achieved it on a normalised basis. What makes you confident that you can achieve your target in the midst of a crisis?

We need to improve our execution. That is why disciplined execution is a key theme of our strategy. So, we need to be focused and quite clear on how we can improve in terms of delivery. And we need to be transparent — recognise areas in which we need to improve and be focused and say these are the things we want to do and then deliver that. It’s that straightforward.

One of the areas that we need to improve is Clicks — the consumer platform — which historically has had a stability issue. The data on our reliability in terms of Clicks is just not good enough.

One immediate step I took was to stop what I call ‘further adding on’ to the platform. Obviously, all our teams want to innovate, but I have a rule that says, until we can show three consecutive months of high reliability and stability, 99.5%, we cannot add anything to Clicks. We need to make sure that our platform is stable first before innovating.

Until we prove that we are able to deliver in terms of performance improvement, the market will take a sceptical view, which I think is fair. That is why, when we set our target, 2024, one area that we are going to develop is what our immediate 2022 target will be. So, the market can actually see what these are — whether we are on track. There is no point waiting until 2024. We are going to be very granular about what we are going to set up. We are still developing the 2022 target because it’s not easy, right? We still do not know what the economic environment is going to be like.

Is it true that CIMB spending on IT is actually relatively behind the curve compared with others in the industry?

It probably happened five years ago. To be fair, we have faced issues on IT over the last two years and we have accelerated our investment in technology. In the last 1½ years, investment in IT was equal to, if not more than, the market.

When it comes to shareholder return, that includes dividends. What is CIMB’s position on this issue, given that it did not pay any dividends for the first half of this year?

Our position is effectively this — we have a dividend payout ratio policy, which is 40% to 60% of our profit. But we and the whole financial industry have to recognise that, given the current uncertainty caused by Covid-19, we need to be prudent in terms of our capital distribution strategy ... We will relook at the situation at year-end and decide after we have some clarity on the situation.

Did the regulator give any guidance in terms of paying dividends this year?

You will have to pose that question to Bank Negara.

You want to be a focused Asean bank. Any M&A plans to help you achieve this?

When you talk about mergers and acquisitions, I wouldn’t discount any ... but we have to earn the right to do an M&A. And we can do an M&A only when it’s very clear that some of the strategies that we are embarking on are starting to bear positive results. For us to do an M&A in terms of share price from where we are, I don’t think it makes sense. We need to start delivering in terms of what we have set out to do. We need to earn the right to do the right M&A.

What about the digital banking licence? How is that going?

I think that is still being studied. We need to study the opportunity first. We will look at it like any opportunity — whether it makes sense, whether it’s viable for us.

What is your biggest concern in leading CIMB in this challenging environment?

It is how to make sure we deliver. One area that I was constantly asked about is how to make sure we execute well.

Two, the worry about the economy because of Covid. The uncertainty is unusual. In the previous crises in 2001 and 2007/08, we were all positive that it would be over.

We have built a detailed plan; so, regardless of the economic situation, CIMB will still deliver. We just do not know what the outcome will be. Because of the economic environment, we don’t know what the top-quartile ROE will be in four years’ time. That is very challenging because it is uncertain, as it relates to this pandemic — it is something that all CEOs are grappling with.

I recovered from Covid, so I know how it feels and how it affects your life and your family.

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