CIMB Niaga reported a sequentially weaker 3QFY21 net profit of Rp1.07tln (- 9.1% QoQ) due to significantly lower levels of non-interest income (-20.3% QoQ) as loan loss provisions also saw a slight uptick (+5.4% QoQ). Cumulative 9MFY21 net profit is a steadier Rp3.24tln (+74.0% YoY) nonetheless, underpinned by an improved funding profile and sustained cost management. Loans growth is starting to see a pickup in momentum, though management will remain vigilant over pricing pressures. In the near-term, liquidity, asset quality and cost management will still remain as key focus areas though there is now increasing optimism over the overall macro environment. While we remain optimistic over CIMB’s longer-term prospects, underpinned by its F23+ initiatives, we retain our Neutral call given limited upside to our unchanged dividend-derived target price of RM5.10.

• Operating income slipped 3.6% QoQ due to a significant drop in non interest income contributions (-20.3% QoQ). Declines in loan recoveries (- 43.5% QoQ) and foreign exchange/derivative income (-97.0% QoQ) were major factors.

• While net interest margin (NIM) slipped further to 4.84% in 3QFY21 (2QFY21: 5.05%), we are not overly perturbed given that this is due to a build-up in excess liquidity. Significant improvements in its funding cost (CASA ratio of 61.7%) stands it in very good stead amid an improving macro environment which is expected to spur credit demand. The bank’s low loans to-deposit ratio of 76.7% represents ample latent potential.

• Loans outstanding expanded 2.1% QoQ, driven by a turnaround in its corporate (+5.5% QoQ) and consumer (+2.3% QoQ) portfolios. Moving forward, the enterprise banking and consumer businesses will continue to be key drivers, the latter underpinned by the mortgage and auto segments.

• Asset quality is not showing any significant deterioration despite another recent outbreak which led to movement restrictions and business shutdowns. Loan loss provisions ticked 5.4% higher QoQ as a result, though cumulative 9MFY21 provisions are 15.1% lower YoY, due in part to absorption by macro overlays. Gross non-performing loans inched up 0.2% QoQ to 3.4% as special mention loans was 0.3% higher to 6.9%. Active loans at risk (including COVID-19 related credit) is still at about ~18% of its total loans book, though with a higher 41% (2QFY21: 39%) coverage ratio. 9MFY21 credit cost is 2.5%, and within expectations.

Source: PublicInvest Research - 29 Oct 2021