This article first appeared in The Edge Malaysia Weekly on May 1, 2017 - May 7, 2017

IN the last two years, CIMB Group Holdings Bhd has been busy walking its Target 2018 (T18) talk. But as the group will cross the T18 finishing line at the end of next year, what is next for the country’s second largest banking group?

Growth, says group CEO Tengku Datuk Seri Zafrul Aziz. “T18 is about re-calibration, consolidating the business and focusing on areas where we are strong. After that, maybe it will be time to look at growth again,” he tells The Edge.

When asked if that will involve mergers and acquisitions, Zafrul says, “It will. [We] cannot discount that.”

On whether the group would reconsider a merger with another bank here in Malaysia, he remarks, “Not today. If you ask me where we will see growth, it will be in countries where we are sub-scale. In Malaysia, we have the scale; the same goes for Indonesia … It will be in countries where we don’t have the scale.” He cites the Philippines, Vietnam and Thailand as examples.

Zafrul says the group is looking at organic growth in the Philippines. As for inorganic growth, he adds, there is nothing firm yet as the group wants to complete T18 first.

CIMB outlined T18 in February 2015, targeting return on equity of 15%, common equity tier 1 ratio of more than 11%, cost-income ratio of less than 50% and consumer banking income contribution of 60% by end-2018.

In April last year, Zafrul said the group would continue to focus on optimising cost and divesting non-core assets. He acknowledged that income growth was still one of the top concerns of the industry at the time. CIMB also undertook several cost-cutting initiatives, including major mutual separation schemes and restructuring in a few markets, which cost it nearly RM720 million.

“I think now is a test for all of us to see how we address these concerns. We were lucky because we started the T18 initiative at the right time,” he told The Edge in an exclusive interview last year, adding that when markets are tough, one has to make tough decisions.

CIMB has been on an asset unlocking and divestment path while undertaking a number of deals. On July 1 last year, it completed the divestment of its 51% stake in PT CIMB Sun Life for RM170 million (IDR550 billion) cash to Sun Life Assurance Co of Canada.

It announced three deals within 3½ months in the last six months. Last October, CIMB announced its plan to form a joint venture for its stockbroking business, and in December, it said it was selling for A$37.13 million its entire interest and units in two funds that invested in Australian commercial office assets. In the same month, it made known its plan to dispose of its entire 18.21% stake in China’s Bank of Yingkou for RM972 million.

When asked if CIMB is looking to divest any more non-core assets, for example, Touch ’n Go, which is the last of the kind in the group’s stable, Zafrul says: “We want to grow Touch ’n Go first before unlocking its value. If we unlock today, it’s not going to reach its full potential. We want to expand it into retail; we are open to work with anybody but not to sell a stake. We feel there’s a lot of value to be created in Touch ’n Go and we can execute value creation through it. Once we think we’ve done what we can, we can increase the value further.

“We’ve decided that Touch ’n Go is a strategic asset, especially in the payment space, so we’re not going to sell it. [In fact], we’re thinking of increasing our stake.

“Touch ’n Go is definitely strong when it comes to logistics and highways … but now it needs to go into retail. We should look at using Touch ’n Go for payments rather than just parking and tolls. It will complement the direct debit and credit cards.”

CIMB has a 52% stake in Touch ’n Go.

Over a decade ago, CIMB rapidly acquired assets, building a presence in key Asean markets like Singapore and Indonesia. It reached the Top 5 spot in the region through an amalgamation of banks over a period of time. What catapulted it into the Asia-Pacific league, though, was its acquisition of the Royal Bank of Scotland in 2012. But this also led to concerns that the banking group may have overstretched itself. Moreover, the purchase added significantly to CIMB’s costs. Did it grow too big too soon?

Two years ago, the banking group consciously stepped on the brakes of spurring growth through mergers and acquisitions as costs ballooned and the operating landscape turned more challenging.

Now, Zafrul, who was mostly involved in investment banking in his banking career, is saying growth will be back on the cards after CIMB reorganises under T18. It will be interesting to see how the avid marathon runner and his team achieve this in a rapidly changing business environment and what they will do differently.

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