- CIMB Group Holdings Bhd’s (CIMB) 97.9%-owned Indonesian subsidiary PT Bank CIMB Niaga Tbk’s (CIMB Niaga) turned in flattish QoQ net earnings in 3QFY13, which if annualised, came in at 11% below our FY13 forecast. Loan loss provision has moved up higher QoQ but this was offset by a stronger non-interest income line. CIMB Niaga’s contribution to group net earnings is estimated at 34% in 3Q (unchanged from 2Q’s 34%) based on our forecasts

- Loans growth was deliberately kept at slower rates of 3% QoQ and 12% YoY compared to the industry’s 4% QoQ and 20% YoY expansion. This is due to ongoing cautious stance adopted by the company as it imposes more stringent underwriting standards across the board. For the corporate segment, the company remains cautious. It continues to participate in the smaller and retail segments but is now imposing higher lending benchmarks such as lower margin of financing for borrowers. We are positive on the company’s prudent stance.

- Deposit growth was sustained at 9% QoQ and 12% YoY, with CASA growth of 6% QoQ and 15% YoY - driven mainly by its numerous Internet and mobile initiatives and not through pricing. NIM increased by 5bps QoQ to 5.36% in 3Q, mainly due to efforts to reprice its assets across the board to reflect the higher cost of fund earlier. The company is maintaining NIM guidance at 5.2% to 5.3%. Overall, the NIM is in line with our expectations.

- Non-interest income was boosted mainly by its forex segment, due mainly to increased volume. This is in line with earlier indications that the forex market has improved significantly since August 2013.

- There was a 13.6% QoQ increase in impaired loans in 3Q, leading to higher gross impaired loans ratio of 2.8% in 3QFY13 from 2.5% in 2QFY13. The company indicated that there was a generally slower repayment profile across the board for its portfolio including its retail segment. Further, the higher non-performing loans were also due to the company widening its impairment criteria to be more conservative. This led to higher loan loss provision and estimated credit costs of 98bps in 3QFY13 from 49bps in 2QFY13. Looking ahead, the company indicated that normalised credit costs will likely be around 80bps to 100bps for FY13F, in line with our expectations. The company hints that the overall trend for NPL will likely be more certain over the next two quarters. The 3Q is positive given that forex income and CASA have turned in strong growth. We like the company’s prudent stance, but as indicated by the company, NPL would probably need at least two more quarters to stabilise.

Source: AmeSecurities