- CIMB Group Holdings Bhd’s (CIMB) 97.9%-owned Indonesian subsidiary, PT Bank CIMB NiagaTbk (CIMB Niaga)uplifted its normalised net earnings to Rp442bil (excluding one-off MSS costs of Rp471bil) for 3QFY15 (2QFY15: Rp93bil). Including MSS costs, CIMB Niaga’s contribution is 2.7% of group net earnings in 3QFY15, based on our estimates.

- Gross impaired loans fell by 10.7% on a QoQ basis, taking gross impaired loans ratio lower to 5.18% in 3QFY15 from 5.74% in 2QFY15. This came from the sale of USD200mil (about 1.5% of loans) coal-related NPLs to a special purpose vehicle (SPV) under the CIMB Group. The sale of these coal-related NPLs was after an assessment that recovery of these may take longer than expected. Coal and coal-related loans now make up 3.3% of total loans post the sale of NPLs, vs. the 4.8% level prior to the sale. CIMB Niaga indicated that the impact from the sale is neutral on its loan loss provisioning, as the coal and coal-related NPLs have been provided for up to a coverage of 70%.

- Without the sale, we estimate gross impaired loans ratio to be higher at 6.8% in 3QFY15, with absolute impaired loan balance estimated to have risen 17.5% QoQ. The company attributed it to an upward trend in late repayments. This is occurring across the board in the auto and commercial segments. The special mention loans ratio rose to 8.26% in 3QFY15 from 6.10% in 2QFY15.

- Loan loss provisioning remained elevated at Rp1,191bil (estimated at RM362.0mil in Ringgit terms) in 3QFY15, if compared to 2QFY15’s Rp1,335bil (estimated at RM374.8mil in Ringgit terms). Credit costs remained high at 265bps in 3QFY15 based on our estimates, albeit it is lower than 2QFY15’s 299bps in 2QFY15.

- With the sale of NPL, loan loss coverage (LLC) (for impaired loans classification) was stable at 74.0% in 3QFY15, vs. 74.4% in 2QFY15 (without the sale of NPL, we estimate LLC to be lower at 56.2% in 3QFY15). This is in line with the company’s indications that while there have been some new NPLs, most of these new NPLS are well collateralised, and not all new NPLS are fully provided for at this stage.

- The bright spot is NIM, which widened 36bps QoQ to 5.40% in 3QFY15 from 5.04% in 2QFY15, due mainly to good growth in CASA and lower deposit rate on USD deposit. This is better than the earlier guidance that NIM may be slightly less than 5% for FY15. The 3QFY15 results indicate ongoing challenging asset quality, in our view. We maintain HOLD on CIMB.

Source: AmeSecurities Research - 2 Nov 2015