- We maintain our HOLD rating on CIMB Group Holdings (CIMB), with an unchanged fair value of RM4.70/share. Our fair value is based on an unchanged ROE of 9.5% for FY16F, leading to an unchanged fair P/BV of 1x.

- At our recent company visit, CIMB alluded to asset quality trend generally sustaining for now.

- As for Indonesia, CIMB hinted there continues to be some weaknesses, but it expects non-performing loans (NPLs) and impaired loans to peak this year.

- The weaknesses in Indonesia are still contained within the coal and commodity segments.

- The good news is that CIMB has not seen NPLs spreading to other areas such as the manufacturing segments in its Indonesian operations.

- Thus, CIMB further reiterated its earlier view that the rate of improvement, in terms of CIMB Niaga’s loan loss provisioning in the remaining quarters of 2015, is unlikely to be as dramatic as earlier anticipated.

- CIMB is maintaining its revised guidance that credit costs are likely to be more than the earlier 40bps to 50bps target, but unlikely to be higher than the average of 1HFY15 in the 70bps to 80bps range.

- Overall, CIMB hinted that there are no particular areas of major stress or strains in its portfolio.

- However, given that the slower growth environment appears to be dragging out, CIMB believes credit costs are likely to rise in FY16F, particularly given the low base effect for Malaysia.

- CIMB has conducted a whole range of stress test scenarios, whereby it assumes extremely low prices for the commodity segments including oil, palm oil, steel and coal, property prices and currency level.

- Under the stress test scenario, CIMB hinted that the impact to capital is probably going to range between 50bps and 150bps.

- The latest company visit reinforces our view of ongoing slowdown in the banking industry.

- We maintain HOLD.

Source: AmeSecurities Research - 22 Oct 2015