• U/G to BUY from Neutral with MYR8.90 TP (10% upside), c.5% yield. In our view, CIMB’s overseas operations, chiefly Indonesia and Thailand, stand to benefit from the upcoming rate cut cycle. Closer to home, a pick-up in loan growth coupled with strong deposit pricing and cost discipline are positives. A higher ROE target under the next mid-term plan is a key rerating catalyst.

• Rate cut cycle underway... RHB Economics & Market Strategy (RHB EMS) recently revised its view on the Federal Funds Rate (FFR) and now expects the US Federal Reserve (US Fed) to cut the FFR by 100bps in 2024, and a further 100bps in 2025. Closer to home, it expects Bank Indonesia (BI) to cut the policy rate by 75bps and 100bps in 2024 and 2025 respectively, while Bank of Thailand (BOT) is expected to lower its policy rate by 25bps this year and 75bps next year. Bank Negara Malaysia is expected to stay pat. We think the regional rate cuts could be positive for CIMB’s overseas operations.

• …Bank CIMB Niaga (BNGA IJ, BUY, TP: IDR2,300) could be a beneficiary... In our view, Indonesian banks generally stand to benefit from BI’s rate cut cycle. In 1H24, except for Bank Central Asia (BBCA IJ, BUY, TP: IDR12,060), other banks under our coverage saw 1H24 NIM compress by 30-90bps YoY due to the higher cost of liquidity and mismatch between the repricing of deposits vs loans. We expect the situation to reverse when BI’s rate cuts set in. BNGA should benefit from easing funding cost pressures, after its 1H24 NIM compressed by 40bps YoY. Easing funding cost pressures also leave room for improved volumes, given CIMB’s funding-led strategy. Indonesia contributed 24% to group PBT in 1H24.

• ... while BOT rate cuts could help ease asset quality pressures. For Thai banks, the uneven macroeconomic recovery this year has been a challenge for asset quality. However, we are hopeful that the combination of policy rate cuts, acceleration of budget disbursements, and stimulus measures can help spur the economy, leading to improved loan demand and easing asset quality issues. Thailand contributed 4% to group PBT in 1H24.

• Singapore: NIM pressure can be compensated. US FFR cuts will likely pressure NIMs in Singapore, but as long as the global economy does not slip into a recession, we believe there will be compensating factors to cushion the NIM pressure. Potentially improved loan volumes, wealth management opportunities, and asset quality improvements are such factors. Singapore did well in 1H24 – 15% of group PBT, thanks to the wholesale segment.

• Near-term booster from improved loan growth? Domestically, loan growth could pick up in the near term. 1H24 annualised growth in Malaysia was c.2% vs management’s 5% target, suggesting a stronger 2H24. According to media reports, CIMB has approved c.MYR500m of data centre-related loans with another MYR5bn in the pipeline, which should bode well for growth ahead.

Source: RHB Research - 11 Oct 2024