- CIMB Group Holdings Bhd’s (CIMB) 97.9%-owned Indonesian subsidiary, PT Bank CIMB NiagaTbk (CIMB Niaga) reported ongoing subdued net earnings of Rp83bil for 1QFY15, translating into RM23.5mil based on our estimates.

- Gross impaired loans had unexpectedly continued to rise on a QoQ basis, to Rp9.4 trillion in 1QFY15, from Rp8.4 trillion in 4QFY14. This was attributed to ongoing impact from coal and coal-related loans as well as some manufacturing loans, on the back of the weaker macro-economic growth in 1Q in Indonesia. This takes the gross impaired loans ratio higher to 5.33% in 1QFY15, from 4.79% in 4QFY14 (4QFY14 then was an improvement compared to 5.37% in 3QFY14).

- Similarly, gross NPL ratio had moved up to 4.07% from 3.90% on a QoQ basis. The company expects the NPL ratio to continually rise to more than 4%, but it is hopeful that it will not be substantially above 4.5%, by end-June 2015. This is because the company expects the macro environment to remain soft in 1H15, before it picks up in 2H15.

- Loan loss provisioning came in better on a QoQ basis, at Rp1,446bil (or an estimated RM410mil) in 1QFY15, if compared to 4QFY14’s Rp1,959bil (or RM552mil). The company alluded that it expects to do the bulk of the heavy loan loss provisioning in 1HFY15, but loan loss provisions for the next few quarters are not expected to be as high. Credit costs is estimated at 328bps in 1QFY15 (4QFY14: 457bps). The good news is that loan loss coverage (for impaired loans classification) has been raised significantly to 78.3% in 1QFY15, from 72.4% in 4QFY14, which is in line with the earlier target.

- Loan growth was subdued largely on account of slower consumer loans growth, as well as strategic shift of the commercial and corporate loans into better quality working capital loans. NIM came off by 41bps on a QoQ basis though, due to the focus on higher quality but lower margin working capital loans. The company expects NIM to end at slightly less than 5% for FY15 due to its strategic focus into quality loans.

- The company remains cautious, indicating that it expects 1HFY15 to remain challenging, while it is hopeful that there will be a pick-up in 2HFY15. The 1QFY15 indicated an unexpected increase in impaired loans while we had expect some signs of stabilisation. Otherwise, we are positive on the improved loan loss cover. We maintain HOLD on CIMB.

Source: AmeSecurities Research - 23 Apr 2015