- CIMB Group Holdings Bhd’s (CIMB) 97.9%-owned Indonesian subsidiary, PT Bank CIMB Niaga Tbk’s (CIMB Niaga) 1Q annualised net earnings was 9% below our forecasts, with estimated earnings contribution to the group at 29% for 1QFY14 (4QFY14: 28%).

- Loans growth was better at 2.5% QoQ in 1QFY14 (4QFY13: +0.9% QoQ) as the company felt more comfortable with the lending environment, which led to loans being extended to highquality corporates, as well as higher utilisation of its USD loans to minimise the impact from excess idle funding and negative carry. The stance was therefore a reversal of the company’s earlier cautious stance, whereby it deliberately slowed down growth. The company is maintaining its loans growth target at 15% for FY14F.

- Given the more relaxed stance on lending, the group LDR was moved up to 98.4% in 1QFY14, from 94.5% in 4QFY13. Its USD-based LDR was also correspondingly raised to circa 72%, from 65% previously. Deposit growth slid though to -1.4% QoQ in 1QFY14 from 0.4% QoQ in 4QFY13.

- NIM continued to drop to 5.22% in1QFY14, from 5.34% in 4QFY13. The company indicated that NIM may drop by another 20bps to 30bps in FY14F. This is new as it was previously indicated that cost of funds’ upward movement of 80bps-90bps on average in FY13 may have peaked; these have not been fully passed on through re-pricing of loans. The loans are expected to be re-priced upwards by 40bps this year. The company may have matched a few competitors’ strategy to raise fixed deposit in the near future, which may put more pressure on NIM.

- Gross impaired loans ratio were stable at 3.1% in 1QFY14, compared to 3.2% in 4QFY13. Gross NPL ratio had increased though to 2.6% from 2.2% in the previous quarter, but this was attributed to corporates which had been on the watchlist earlier in 4Q for slow repayment; the loans have already been impaired. Credit costs was much lower at 51bps (4QFY13: 92bps), due to a few major corporate writebacks. Credit costs guidance is now 70bps-80bps, which is slightly better than earlier guidance of ~80bps FY14. The only blip is special mention loans ratio, which had increased to 5.71% from 5.26%, possibly due to late repayments for a few consumer-related NPLs due to the long weekends in March.

- Overall, CIMB Niaga’s 1Q is slightly more positive, given the better loans growth, and betterthan-expected asset quality, although there is now renewed uncertainty over NIM, and consumer-related impaired loans given the special mention loans category.

Source: AmeSecurities