Period a 4Q14/FY14

Actual vs. Expectations  CIMB Niaga’s FY14 PAT of IDR2,342bn (-45% YoY) was below expectations, representing only 66% and 67% of our and consensus’ full-year forecasts.

 The steep shortfall was primarily due to a higher-thanexpected provision for bad loans.

Dividends  No dividends were declared.

Key Results Highlights

FY14 vs. FY13, YoY  The weak results (-45%) can be attributed to: (i) a sharp decline in non-interest income as treasury and bancassurance fees had fallen (-47%), (ii) higher opex as a result of inflationary pressure (+5%) and (iii) a surge in loan loss provision on deteriorating asset quality (+188%).

 Net interest margin (NIM) was stable at 5%, thanks to Otoritas Jasa Keuangan (OJK)’s ruling to cap interest rates on deposits back in early Oct-14.

 Loans accelerated at a quicker pace vs. deposits at 12% and 7%, respectively, causing loan-to-deposit ratio (LDR) to pass the 100%-mark. Notably, loans growth was above management’s target of +8-9% for FY14.

 Cost-to-income ratio (CIR) ticked up 3ppts to 51% as opex rose 5% while income base was flat.

 Asset quality deteriorated as: (i) gross impaired loans ratio (GIL) increased to 3.9% (+2ppts), loan loss coverage (LLC) declined to 89% (-28ppts), and (iii) credit charge ratio rose to 2% (+1ppts).

 Annualised ROE was down 9ppts to 8% but regulatory capital ratios improved by 20-40bpts.

4Q14 vs. 3Q14, QoQ  Quarterly earnings declined by 87% as provision for bad loans spiked up by 109%. This was however, soften by higher fees and commissions income (+54%).

 NIM improved 35bpts, aided by the interest rate cap.

 LDR grew 1ppts to 101% as loans and deposits rose by 6% and 5%, respectively.

 CIR dropped 9ppts as total income base grew 17% while opex fell 2%.

 As highlighted above, asset quality deteriorated as: (i) credit charge ratio surged 2ppts while (ii) GIL nudged up by 55bpts.

Outlook  Given the challenging macro outlook in Indonesia such as: (i) slower economic growth, (ii) rising inflation along with (iii) wide current account deficit, we believe the tight monetary policy is likely to stay. Hence, the 2015 outlook for Indonesian banks is dim.

Change to Forecasts  No change to our estimates for now, pending CIMB Group’s results release on 27 Feb. CIMB Niaga contributed 22% to group’s PBT in 9M14.

Rating Maintain MARKET PERFORM

Valuation  Our GGM-TP of RM6.27 based on 1.35x FY15 P/B is maintained.

Risks to Our Call  Steeper margin squeeze.

 Slower-than-expected loan growth.

 Worse-than-expected deterioration in asset quality.

 Adverse currency fluctuations.

Source: Kenanga