· CIMB Group Holdings Bhd’s (CIMB) 93.7%-owned subsidiary CIMB Thai Bank plc (CIMB Thai) managed to improve net earnings by 66.6% on a QoQ basis to THB217.6mil (or RM24.1mil) despite an uptick in loan loss provision during the quarter, due mainly to successful containment of overhead costs.

· We estimate annualised loans growth of 6.4% in 2QFY15. The company attributed the anaemic loans growth trend to slower macro environment. We estimate that core deposit has contracted though at an annualised pace of 8.2% in 2QFY15. The contraction in deposit growth led to a jump in loan-to-deposit ratio, to 114.2% in 2QFY15, from 100.6% in 1QFY15.

· The higher loan-to-deposit ratio was compensated by an improvement in net interest margin (NIM) – estimated at 20bps QoQ – to 3.15% in 2QFY15. Non-interest income is relatively stable on QoQ basis, backed mainly by a spurt in investment gain. Otherwise, other core fee income line had softened marginally.

· Gross non-performing loans (NPL) continued to register an upward trend, of 12.7% QoQ (1QFY15: +10.9% QoQ) to THB8.0bil in 2QFY15, from THB7bil in 1QFY15. Gross NPL ratio had increased to 3.9% in 2QFY15, from 3.7% in 1QFY15. The company continued to attribute the increase to slower repayment ability from a few corporate accounts.

· Loan loss provision rose further to THB1,144.2mil in 2QFY15, from an already elevated level of THB1,021.8mil in 1QFY15. Credit costs remained high at 237bps in 2QFY15, vs. 215bps in 1QFY15. We are positive that loan loss cover was sustained though at 94.3% in 2QFY15, vs. 94.1% in 1QFY5, indicating that the bulk of the new NPLs are being provided for.

· CIMB Thai’s revenue lines remained relatively stable in 2QFY15, with ongoing uptrend in NPL. Thus, this is similar to 1QFY15, whereby the NPL trend in CIMB Thai has yet to stabilise. We are positive though in terms of the loan loss provisioning stance taken, given that loan loss cover was maintained. The other possible new concern is the contraction in deposit in 2QFY15. We maintain HOLD.

Source: AmeSecurities Research - 21 Jul 2015