CIMB’s 2Q20 earnings plunge 82% on high provisions, moratorium impact

By SHAZNI ONG / pic by MUHD AMIN NAHARUL

CIMB Group Holdings Bhd’s earnings plunged 81.6% in the second quarter ended Jun 30, 2020 (2Q20), dragged by elevated provisions amid the Covid-19 pandemic and a modification loss arising from the blanket loan moratorium.

Net profit fell to RM277.08 million from RM1.51 billion posted last year, while quarterly revenue slipped 13.5% to RM3.87 billion from RM4.47 billion a year ago.

“On a year-on-year (YoY) basis, 2Q20 operating income declined 13.5% due to the impact of the modification loss on net interest income (NII) and lower net interest margin (NIM) during the period.

“Consumer banking posted a loss before tax (LBT) of RM82 million compared to a profit before tax (PBT) of RM152 million in 2Q19, from a combination of the impact of the modification loss on NII and higher provisions owing to 2Q20 macro-economic factors adjustments,” CIMB said in a bourse filing today.

Its commercial banking segment saw PBT sink 83.1% on material provision writebacks in 2Q19, while wholesale banking reported a LBT of RM31 million due to higher provisions as a result of a material impairment in the current quarter and adjustments for economic conditions.

Group ventures, partnerships and funding (GVPF) PBT also fell 68.7% from a decline in NII following interest rate cuts and the absence of the gain from sale of the Malaysian equities business in 2Q19.

NIM came in at 2.29% in the first-half ended June 30, 2020 (1H20), owing to the impact of interest rate cuts and the one-off modification loss arising from fixed rate loans.

Gross loans grew 3.9%, with Malaysia gross loans rising 4.8%.

Total deposits climbed 7.8% on a 20.2% growth in current account and savings account (CASA), as the group focused more on lower-cost deposits.

Gross impaired loans ratio rose to 3.6% as at end-June from 3.1% last year. The increase in loan provisions was mainly driven by “sizeable impairments outside Malaysia”.

The banking group did not propose an interim dividend for the first-half, as its priority is conserving capital amid the global economic slowdown.

“The group will review the position at year end, subject to economic conditions and regulatory approvals,” it said.

It’s also targeting an absolute cost reduction of circa RM500 million or 5% for 2020.

“Moving ahead, we expect continued weaker performance for the remainder of 2020 in line with uncertain economic conditions, as we recognise elevated provisions arising from the impact of macroeconomic factors under the Malaysian Financial Reporting Standards 9 and take impairments on specific accounts outside Malaysia to strengthen our financial position,” CIMB group CEO Datuk Abdul Rahman Ahmad said.

Shares of CIMB closed 2.1% or seven sen lower at RM3.30 today, valuing the banking group at RM32.75 billion.