CIMB expects a 2nd OPR cut by end-2019

The group has projected up to 10bps in NIM compression on possible OPR cut by the central bank

by NG MIN SHEN/ pic by RAZAK GHAZALI

CIMB Group Holdings Bhd expects the central bank will slash the policy rate by another 25-basis-point (bps) before the end of the year.

The country’s second-largest bank based on assets had projected up to 10bps in net interest margin (NIM) compression if the central bank moved to cut the Overnight Policy Rate (OPR) again this year.

“We are expecting another 25bps cut before the end of the year. It would be a marginal impact (on NIM), depending on when in the year it happens…an impact of 1bps-2bps on NIM for the financial year ending Dec 31, 2019,” said group CEO Tengku Datuk Seri Zafrul Aziz (picture) in Kuala Lumpur yesterday.

Bank Negara Malaysia slashed the policy rate by 25bps to 3% in May this year, citing “signs of tightening of financial conditions” amid a growing slowdown in global and domestic economic activity.

The prospect of another cut is heightened after several central banks in Asia slashed their lending rates earlier this month after the US Federal Reserve cut rates in July, the first time in a decade.

Worries of a slower global growth have prompted central banks around the globe to evaluate their lending rates to boost economic activities.

CIMB’s NIM as at end-June stood at 2.46%, down from 2.53% a year ago.

“At half-year, we recorded a 7bps contraction, mainly driven by the OPR cut in May. So, we are still confident that we’ll stick to that compression of 5bps-10bps for the entire group, and similarly for Malaysia,” CIMB group CFO Khairul Rifaie said.

The banking group’s net profit slipped 23.7% to RM1.51 billion in the second quarter ended June 30, 2019 (2Q19), from RM1.98 billion recorded a year ago due to the absence of a RM920 million one-off gain from the disposal of the group’s stakes in asset management joint ventures with Principal Financial Group.

CIMB’s revenue for the April-June period was 8% lower at RM4.47 billion compared to RM4.86 billion a year earlier.

Net interest income grew 3.3% year-on-year (YoY) from loan growth, while non-interest income expanded 8.5% largely due to better capital market activity in 2Q19.

The group has declared a first interim dividend of 14 sen per share, translating to a dividend payout ratio of 50.4% of its first half of 2019 (1H19) profits.

Total gross loans grew 6.9% YoY to RM355.9 billion in 2Q19. Total deposits climbed 9.9% to RM389 billion, while Malaysia’s deposit growth came in at 10.1%. Gross impairment ratio was at 3.1% as at end-June 2019 versus 3.2% last year.

Tengku Zafrul said the group is maintaining its overall loan growth projection of 6% this year.

“Our main focus for 2H19 will be on loan growth, revenue generation and asset quality management. Key financial targets are on track as our main markets continue to grow despite the challenging operating environment driven by continued trade tensions,” he added.

CIMB’s share price dropped 0.8% to close yesterday’s trading at RM4.94, valuing the company at RM48.05 billion.