http://www.thestar.com.my/business/business-news/2016/08/02/cimb-gets-boost-from-indonesia/

PETALING JAYA: CIMB Group Holding Bhd’s shares rallied following the release of its Indonesian unit PT Bank CIMB Niaga Tbk’s results which showed a significant improvement in its financial metrics.

However, analysts cautioned that Indonesia’s weak credit environment remained a key concern going forward.

Shares of the banking group rose to its highest in nearly a month after CIMB Niaga posted a net profit of 736 billion rupiah for the six-month ended June 30, 2016, or a 318% increase on a year-on-year (y-o-y) basis.

CIMB Group’s rise partly contributed to the sharp rally in the FBM KLCI which closed up 11.97 points to 1,665.23 points yesterday. CIMB Group’s shares closed at RM4.50, or an 11 sen increase from last Friday.

The increase in CIMB Niaga’s net profit was due to higher net interest income of 5.81 trillion rupiah and higher non-interest income of 1.46 trillion, an increase of 4.8% and 24% respectively from the same period last year. Additionally, the company also reported a 7.9% decrease in provision expense.

In a statement, CIMB Niaga president director Tigor M. Siahaan said he expected a gradual improvement in the group’s performance during the second half of the year on the back of various macroprudential government fiscal and monetary policies to stimulate sustainable economic growth in Indonesia.

CIMB Niaga is Indonesia’s fifth largest bank with total assets of 239.38 trillion rupiah as at June 30.

In a note yesterday, Public Invest Research said that CIMB Niaga’s performance showed considerable improvement in income as well as asset quality.

“Gross loans were lower y-o-y at 175.34 trillion rupiah as the bank continues to maintain a conservative growth strategy with the implementation of cost management initiatives thus seeing shrinking operating expenses.

“Some turnaround signs seem to be showing, however, we maintain that recovery will be slow amid the weak economic environment,” said Public Invest, which has “trading buy” call on CIMB Group’s shares with a RM5.18 target price.

The Indonesian central bank’s lowering of its benchmark interest rate to 6.75%, coupled with more stimulus measures planned for the year should encourage more stability in the country’s capital markets which bode well for the longer term, the research house added.

UOBKayHian concurred in another note, saying that the prevailing weak sentiment in the financial sector remains a dampener despite the pick-up in sequential loans growth momentum.

“Although loans growth contracted 3% y-o-y in the first half, there was a 2.5% quarter-on-quarter growth recovery driven mainly by lumpy corporate and commercial loans and as such, the sustainability remains questionable,” it said.

UOB noted that personal and credit cards loans were the key growth drivers for the bank while auto, corporate and commercial loans registered a contraction. The research house currently has a “hold” call on CIMB Group with a target price of RM4.40.