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Wednesday, February 22, 2017

AllianceDBS cautious on outlook

Wednesday, 22 February 2017

AllianceDBS Research remained cautious on PT Bank CIMB Niaga Tbk and PT Maybank Indonesia, stating that apart from unresolved asset quality issues in Indonesia, it believes pressure on net interest margins (NIM) may possibily dent topline growth.

PETALING JAYA: The outlook for Malayan Banking Bhd’s (Maybank) and CIMB Group Holdings Bhd’s Indonesian operations could still be hazy this year, impacted by asset quality issues, despite the banking arms’ healthy results for the financial year ended Dec 31, 2016 (FY16).

AllianceDBS Research remained cautious on PT Bank CIMB Niaga Tbk and PT Maybank Indonesia, stating that apart from unresolved asset quality issues in Indonesia, it believes pressure on net interest margins (NIM) may possibily dent topline growth.

“Asset quality issues among Indonesian banks are not over yet and may linger on till second quarter of this year unless gross domestic product growth picks up strongly,” said AllianceDBS, keeping a “hold” call on Maybank and CIMB.

CIMB Niaga posted 387% growth in consolidated net profit in FY16, on higher net interest income to 12.09 trillion ruppiah (RM4bil) and a 2% year-on-year (y-o-y) rise in non-interest income to 4.23 trillion rupiah (RM1.4bil).


Maybank Indonesia’s earnings, meanwhile, surged 71% to a record 1.9 trillion rupiah or RM650.38mil in FY16, on sound net interest income growth, controlled cost management and better provisioning for non-performing loans.

“Both Maybank Indonesia and CIMB Niaga saw a boost in net profit, as higher NIM led topline growth while provisions declined, albeit still at elevated levels.

“Loan growth for both banks remained muted at 3% and 2% y-o-y, while deposit growth stood at 3% and 1%, dragged by contraction in time deposits as part of the banks’ liability management efforts,” said AllianceDBS.

Despite CIMB Niaga’s 2015 numbers that included mutual separation scheme cost, the two banks kept expenses, which brought down cost-to-income ratio.

Both CIMB Niaga’s and Maybank Indonesia’s gross non-performing loans ratio were lower, while restructured loans made up 3% and 6% of total loans.

“CIMB Niaga expects return on equity (ROE) to improve from the 6% level now and has guided for high single-digit loan growth, and NIM to be around 5% due to a shift in focus to better quality loans and competitive pressures,” it said.

It added that credit cost is expected to be lower y-o-y at around 200 basis points (bps).

As for Maybank Indonesia’s ROE, this is expected to be in the range of 10% to 11%, with loan growth of 10% to 12% and deposit growth of 8% to 10%.

“NIM compression of 15 to 20 bps and credit cost of about 130 bps is forecast,” AllianceDBS noted, adding that Maybank Indonesia is also planning a rights issue of 1.5 to 2 trillion rupiah in the second half of 2017.

Locally, it said slower loan growth and weak capital markets could cap revenue growth in Malaysia.

AllianceDBS likes Public Bank Bhd and Hong Leong Bank Bhd for their exposure in Malaysia and BIMB Holdings Bhd and AMMB Holdings Bhd for their superior growth and potential turnaround.


Read more at http://www.thestar.com.my/business/business-news/2017/02/22/alliancedbs-cautious-on-outlook/#c3ydKEJ27mf8qfwE.99

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