Expected rate cut will have minimal impact on net interest margin

KUALA LUMPUR: CIMB Group Holdings Bhd CEO Tengku Datuk Seri Zafrul Aziz said an Overnight Policy Rate (OPR) cut within the year will squeeze its net interest margin (NIM) by only one to two basis points.

“From the expected rate cut, we are expecting a contraction of one to two basis points in our NIM for the whole group,” he said at a media briefing to release its 1H19 financial results today.

Its 1H NIM contracted 7bps to 2.46% from 2.53% a year ago.

CIMB posted a 23.8% decline in net profit to RM1.51 billion for the second quarter ended June 30, 2019 against RM1.98 billion in the same quarter a year ago.

This was due to a one-off gain of RM928 million from the disposal of its stake in CIMB-Principal Asset Management and CIMB-Principal Islamic Asset Management in the previous corresponding period.

Excluding the one-off item, its profit would have been 43.3% higher.

Its revenue was down 8.1% to RM4.47 billion from RM4.86 billion.

The bank has proposed to declare an interim dividend of 14 sen per share for the quarter under review, representing a payout ratio of 50.4%.

CIMB’s first-half net profit slipped 17.8% to RM2.7 billion from RM3.29 billion in the same period a year ago. Revenue came in at RM8.63 billion, 5.8% lower than the RM9.17 billion achieved previously.

For the period under review, the bank’s operating income rose 4.8% to RM8.64 billion. Net interest income grew 3.3% driven by the 6.9% expansion in loans growth, while the 8.5% increase in non-interest income was on the back of better capital market activity.

The group’s gross impairment ratio stood at 3.1% as at end-June 2019, with an allowance coverage of 96.6%. Its net interest margin was lower at 2.46% mainly from the spread compression in Malaysia.

As at June 30, 2019, CIMB’s total capital ratio stood at 16.6% while the common equity tier 1 capital ratio at 12.9%.

On the whole, the group is positive that it will be able to achieve the return on equity target of 9-9.5% for the year on the back of a strong loan growth and cost efficiency measures.

“If we continue to have the same run rate as had in the first half, I am confident that we’ll hit the 6-7% loan growth target,” said Zafrul.

He is also optimitic of its overseas operations in anti-cipation of better consumer banking segment in Indonesia, Thailand and Singapore.

Meanwhile, he disclosed that CIMB will be allocating RM2 billion in capital expenditure in the next two years for long-term growth.

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