CIMB Bhd : Group announces RM2.016 billion Net Profit for 1HFY14

CIMB Group Holdings Berhad ("CIMB Group" or the "Group") today reported a net profit of RM2.016 billion for the first half of 2014 ("1H14"), equivalent to a net earnings per share ("EPS") of 24.6 sen. In 1H13, the Group reported a 1H13 net profit of RM2.440 billion, which includes a RM365 million net gain from the sale of CIMB Aviva. Excluding the exceptional gains, the Group‟s Business As Usual ("BAU") 1H14 net profit decreased by 2.8% year-on-year ("Y-o-Y"). The Group's annualised 1H14 net return on average equity ("ROE") was 12.2% with an enlarged equity base following the private placement of new shares in January 2014. The Group declared a first interim net dividend of 10.00 sen per share to be paid in the form of cash or an optional Dividend Reinvestment Scheme ("DRS"). The total interim dividend amounts to a net payment of RM834 million, translating to a dividend payout ratio of 41.3% of 1H14 profits.

1) Summary

- 1H14 BAU net profit declined 2.8% due to difficult operating conditions in Indonesia, the weaker Rupiah and weaker capital markets.

- High growth momentum continued at Malaysia Consumer Bank, CIMB Bank Singapore and CIMB Thai.

- The regional Corporate and Consumer banking share increases to 70% of total Group PBT in 1H14.

- Group operating expenses fell 1.1% on tighter cost control resulting in an improved cost to income ratio of 57.9% compared to 1H13 BAU, while 1H14 gross impairment ratios improved to 3.1% from 3.6%.

- The main challenge for 2H14 remains in Indonesia in view of the prevailing economic and liquidity environment.

- CIMB Malaysia should have a steady 2H14, with continued growth in CIMB Singapore, brighter Thai economic outlook and gradually improving regional capital markets.

- Effective 1 September 2014, Dato' Sri Nazir Razak takes over as the Chairman and Tengku Dato' Zafrul Tengku Abdul Aziz appointed as the Acting CEO of CIMB Group.

"It was a difficult first half, due mainly to the tough conditions in Indonesia and the sharply weaker Rupiah, which combined to decrease CIMB Niaga's PBT contributions by 19.8%. Low financial market volumes and volatility across the region led to weaker IB and Treasury businesses. Nevertheless, excluding Indonesia and last year's exceptional gain, our PBT was up 5.9% Y-o-Y due to the strong performances of our Malaysian consumer bank, CIMB Bank Singapore and CIMB Thai," said Dato' Sri Nazir Razak, Group Chief Executive, CIMB Group.

2) CIMB Group 1H14 Y-o-Y Results

For comparative purposes, the Y-o-Y performance is based on BAU numbers for 1H13. CIMB Group's 1H14 operating income was 1.0% higher at RM6.945 billion. Net interest income was 6.4% higher while non-interest income declined by 10.0%, due to a combination of lower volatility in treasury markets, weaker equity markets and decline in Indonesia bancassurance fees. CIMB Niaga's contribution to the Group was also impacted by an 11.8% Y-o-Y foreign exchange depreciation in the Rupiah. Operating expenses declined 1.1% as the Group's cost control efforts show results. The Group's profit before tax ("PBT") was 2.8% lower at RM2.712 billion.

The Group's regional Consumer Bank PBT expanded by 1.4% Y-o-Y in 1H14 to RM1.190 billion, making up 44% of Group PBT (from 42% in 1H13), with Thailand and Singapore turning profitable. Malaysia now contributes 79% of total Consumer Banking operations. The Group's Regional Wholesale Banking PBT declined by 11.3% Y-o-Y to RM1.228 billion due to the slower equity and treasury markets. Investments was up 26.2% Y-o-Y. The overall contribution of the Group's core corporate and consumer banking business has increased from 68% to 70% of total PBT.

Note: * Excludes gains from sale of CIMB Aviva and restructuring charges in 1Q13

Non-Malaysian PBT contribution to the Group was lower at 35% in 1H14 from 39% in 1H13. This was mainly due to the 20.1% Y-o-Y decline in Indonesia's PBT to RM741 million from the lower CIMB Niaga earnings and the Rupiah's depreciation. Thailand's PBT contribution to the Group grew 5.2% Y-o-Y at RM125 million as the strong growth at CIMB Thai was offset by much weaker performance at CIMB Securities (Thailand). Total PBT contribution from Singapore rose 13.2% to RM160 million as CIMB Bank Singapore PBT grew by 58.2% Y-o-Y.

The Group's total gross loans (excluding the declining bad bank loan book) expanded 8.5% Y-o-Y or 11.3% after adjusting for foreign exchange fluctuations. Over the same period, total deposits grew 4.8% Y-o-Y or 7.8% higher Y-o-Y after excluding foreign exchange fluctuations. This raised the Group's loan to deposit ("LDR") ratio to 89.7% from 86.2% previously.

The Group's gross impairment ratio improved to 3.1% as at June 2014 from 3.6% in June 2013, with allowance coverage (including regulatory reserve) of 104.5% as at June 2014. The Group's cost to income ratio was marginally higher at 57.9% compared to 57.7% previously. However, compared to the BAU of 59.1% in 1H13, the 1H14 cost to income ratio improved markedly. The Group's Net Interest Margins ("NIM") were unchanged at 2.88%.

As at 30 June 2014, CIMB Group's total capital ratio stood at 14.7% while its Common Equity Tier 1 (CET 1) capital ratio stood at 9.5%.

3) CIMB Group 2Q14 Y-o-Y Results

On a Y-o-Y basis, the 2Q14 operating income of RM3.407 billion was 1.1% lower compared to 2Q13 as the 6.6% growth in net interest income was offset by the 17.5% decline in non-interest income due to lower fee-based income from CIMB Niaga. 2Q14 net profit was 9.9% lower Y-o-Y at RM950 million due to higher loan impairments at CIMB Niaga and lower contribution from joint ventures and associates.

4) CIMB Group 2Q14 Q-o-Q Results

The Group's 2Q14 operating income of RM3.407 billion were 3.7% lower than 1Q14, as the 4.0% Q-o-Q increase in net interest income was offset by the 20.0% Q-o-Q reduction in non-interest income in light of the lower fee-based income from CIMB Niaga's Consumer business. 2Q14 net profit was 10.9% lower Q-o-Q at RM950 million due to higher loan impairment at CIMB Niaga.

5) CIMB Islamic

CIMB Islamic‟s Y-o-Y PBT increased by 16.0% to RM277 million due to a recovery in Islamic capital markets activity. CIMB Islamic‟s gross financing assets grew 0.6% Y-o-Y, accounting for 14.5% of total Group loans. Total deposits grew by 13.3% Y-o-Y to RM40.1 billion.

6) Other Highlights

On the M&A front, the Group received Bank Negara Malaysia approval to commence discussions with RHB Capital Berhad and Malaysia Building Society Berhad to potentially undertake the largest merger in Malaysian banking history. Discussions remain on-going.

In 1H14, CIMB Group commenced CIMB Bank branch operations in Hong Kong and Shanghai to facilitate transaction banking requirements of our ASEAN corporate customers. In July 2014, CIMB Thai opened its branch in Laos.

7) Leadership Transition Plan

On 3 July 2014, the Group announced a leadership transition plan effective 1 September 2014, where the Chairman Tan Sri Md Nor Yusof will retire from the Board of Directors. Dato' Sri Nazir Razak will take over as Chairman of CIMB Group. The Group announces today that on 1 September 2014, Tengku Dato' Zafrul Tengku Abdul Aziz will be Acting Group CEO.

8) Outlook

"CIMB Niaga is a large component of our portfolio and the operating environment in Indonesia is expected to remain challenging as last year's sharp turn in Indonesia's terms of trade, interest rates and currency impacts borrowers and liquidity in the system.

CIMB Malaysia should have a steady second half, while CIMB Singapore continues to grow strongly. With the improving economic outlook for Thailand, we are also optimistic on the outlook for CIMB Thai. Given our strong market shares in treasury markets and investment banking we remain primed to benefit when market volumes and volatility improve," Nazir added.

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