BIMB shared with analysts at yesterday’s briefing some guidance and direction for 2016. Management appeared optimistic that its focus on liability management and measures to preserve asset quality can help keep margin and credit cost flat this year. We take heart that BIMB appears to have kept asset quality intact thus far, coupled with high LLC levels. Retain BUY on valuation grounds and GGM-derived TP of MYR4.10(12% upside).

Direction for 2016. As with the other banks, BIMB thinks the bankingenvironment ahead would be challenging. Three areas of focus for BIMB in2016 are: i) liability management, with emphasis on growing retail and currentaccount and savings account (CASA) deposits – both of which would help withliquidity requirements (liquidity coverage ratio (LCR) of 95%) and managing netfinancing margin (NIM) pressure, ii) preserving asset quality, with affordablehousing and construction segments as preferred growth areas, and iii)leveraging on the investment account platform for new opportunities.

2016 guidance includes low -teens financing growth as well as stable NIM andcredit cost. Our 2016F assumptions are in line and/or more conservativerelative to management’s guidance, ie financing growth of 13%, 6bps NIMcompression and credit cost of 33bps (2015: 21bps).

More on asset quality. Although household financing formed 73% of the loanbook, with personal financing making up 40% of total household financing,BIMB appeared optimistic that the measures put in place would help keep assetquality in check. Management highlighted that the gross impaired financing ratiofor household and personal financing stood at 0.7% and 0.6%, below thesystem’s 1.1% and 1.9% respectively. BIMB also highlighted the recentMalaysia Airlines (MAS) restructuring case. BIMB has over 2,200 personalfinancing accounts, of which over 400 accounts relate to affected employees.However, of this number, a mere seven accounts turned impaired – a testamentto BIMB’s ability to manage asset quality. Exposure to the oil & gas sector is10%, of which 2% is for the corporate/commercial book (mainly downstream),while 8% is to the retail segment (mortgages and personal loans). Finally, BIMBhas seen an uptick in delinquencies due to fewer rescheduled and restructuringcases these days. On the whole, despite running a large personal financingportfolio, we think that BIMB’s high financing loss coverage (LLC) of 175%should help provide some cushion in facing headwinds ahead.

Forecasts and investment case. No change to our earnings forecasts,MYR4.10 TP and BUY recommendation. Our 2016F net profit growth appearsmuted mainly as we modelled in higher credit cost of 33bps (2015: 21bps). OurGGM-derived TP is based on: i) COE of 10.5%, ii) ROE of 14.5%, and iii) 4.5%long -term growth. Key risks would be NIM pressure from funding and weakerthan-expected asset quality.