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27 February 2015

CIMB Group announces RM3.107 billion Net Profit for FY14

- FY14 BAU pre-provisioning operating profit (“PPOP”) was 3.2% lower Y-o-Y despite the challenging external environment which impacted non-interest income

- FY14 BAU ROE stood at 9.3% as BAU net profit declined 24.6%. Reported net profit 31.6% lower from higher provisions and goodwill impairment.

- Operating expenses well contained on a BAU basis, rising 0.6% Y-o-Y on better controls.

- Strong capital position with CET1 ratio rising to 10.1% with release of regulatory reserves (compared to 8.0% as at Dec-13).

- 2015 prospects remains challenging with slowing economic growth and nearer term asset quality concerns in Indonesia.

- Better positioned to face impending headwinds with Target 2018 (“T18”) initiatives to recalibrate the Group’s organisational structure and address operational efficiencies.

1) Summary

CIMB Group Holdings Berhad (“CIMB Group” or the “Group”) today reported a net profit of RM3.107 billion for Financial Year 2014 (“FY14”), equivalent to a net earnings per share (“EPS”) of 37.5 sen. Excluding exceptional gains in both FY14 and FY13, the Group’s Business As Usual (“BAU”) FY14 net profit decreased by 24.6% year-on-year (“Y-o-Y”). The Group’s annualised FY14 net return on average equity (“ROE”) was 9.2%. 

"2014 was a difficult year for the Group, with profitability impacted by slower revenues and a sharp increase in provisions for corporate banking loans in CIMB Niaga as well as in Malaysia. This was partially exacerbated by the weakened Rupiah. Capital markets continued to be challenged by low volumes and volatility which affected the IB and Treasury & Markets operations. However, we remain heartened by positive performances at the Malaysian consumer bank and CIMB Bank Singapore, while CIMB Thai is showing operational traction," said Tengku Dato’ Zafrul Tengku Abdul Aziz, Group Chief Executive, CIMB Group.

2) CIMB Group FY14 Y-o-Y Results

For comparative purposes, the Y-o-Y performance is based on BAU numbers for both FY14 and FY13. CIMB Group’s FY14 operating income was 1.0% lower at RM14.019 billion. Net interest income rose 6.1% while non-interest income declined by 14.9%, attributed to an overall softening in both treasury and equity market activity as well as lower bancassurance fees in Indonesia. CIMB Niaga’s contribution to the Group was also impacted by an 8.9% (average rate) Y-o-Y foreign exchange depreciation in the Rupiah. Operating expenses were better controlled, rising 0.6% Y-o-Y. As such, the Group’s Pre Provision Operating Profit (“PPOP”) was 3.2% lower. However, the Group’s PBT declined by 23.0% at RM4.277 billion owing to a jump in corporate loan provisions from Indonesia and Malaysia.

The Group’s regional Consumer Bank PBT reduced by 0.6% Y-o-Y in FY14 to RM2.258 billion, making up 53% of Group PBT (from 41% in FY13). The stronger contributions from consumer operations in Malaysia, Singapore and Thailand were offset by a decline in Indonesia due to the effects from bancassurance regulations and currency translation. The Group’s Regional Wholesale Banking PBT declined by 40.9% Y-o-Y to RM1.606 billion attributed to increased corporate banking provisions and softer capital market conditions. Investments PBT was down 26.5% Y-o-Y. The overall contribution of the Group’s core corporate and consumer banking business has increased from 66% to 69% of total PBT.

PBT By Segment (RM 'mil) FY14* FY13* Y-o-Y
Consumer Banking 2,258 2,271 (0.6%)
 Malaysia 1,850 1,721 7.5%
 Indonesia 298 578 (48.4%)
 Thailand 20 (23) n.a
 Singapore 77 (8) n.a
 Others 13 3 300.3%
Wholesale Banking 1,606 2,718 (40.9%)
 Investment Banking
(21) 204 n.a
 Corporate Banking 700 1,382 (49.3%)
 Treasury & Markets^ 927 1,132 (18.1%)
Investments* 413 562 (26.5%)

Note: * FY14 - Excluding gains from sale of Karawaci building (RM66 mil), gains from sale of CIMB Insurance Brokers (RM61 mil) and IB goodwill impairment (RM128)

** FY13 - Excluding gains from sale of CIMB Aviva (RM515 mil) and restructuring charges (RM217 mil) 

^ Excluding customer flows

Non-Malaysian PBT contribution to the Group was lower at 28% in FY14 compared to 38% in FY13, largely due to the 52.6% Y-o-Y decline in Indonesia’s BAU PBT to RM838 million from the lower CIMB Niaga earnings and the Rupiah’s depreciation. Thailand's PBT contribution to the Group declined 37.2% Y-o-Y to RM213 million due to extraordinary gains accounted in FY13, increased provisions and weaker earnings at CIMB Securities (Thailand). Total PBT contribution from Singapore expanded by 40.4% to RM323 million underpinned by the 60.1% Y-o-Y PBT growth in CIMB Bank Singapore.

The Group’s total gross loans (excluding the declining bad bank loan book) expanded 13.2% Y-o-Y. Over the same period, total deposits grew 7.3% Y-o-Y. As such, the Group’s loan to deposit (“LDR”) ratio increased to 93.0% from 88.4% previously.

Gross Loans by Business (RM 'bil)
Dec-14 Dec-13 Y-o-Y
Retail Financial Services 133.3 116.8 14.1%
Commercial Banking 46.8 39.8 17.6%
Wholesale 81.9 74.8 9.5%
Total Gross Loans*
262.0 231.4 13.2%
Growth by Geography
Dec-14
Malaysia 7.1%
Indonesia^ 12.4%
Thailand^ 11.0%
Singapore^ 14.5%
Others~ 53.9%
Total Deposits by Business (RM 'bil)
Dec-14 Dec-13 Y-o-Y
Retail Financial Services 111.5 103.6 7.6%
Commercial & Enterprise Banking 57.2 49.6 15.3%
Wholesale# 116.0 112.2 3.4%
Total Deposits
284.7 265.4 7.3%
Growth by Geography
Dec-14
Malaysia 2.7%
Indonesia^ 6.7%
Thailand^ 20.9%
Singapore^ 36.5%
Others~ (34.0%)

Notes: * Gross loans excludes bad bank. Excluding FX fluctuations, total gross loans grew 11.4% Y-o-Y and 4.5% Q-o-Q

# Includes deposits with options classified as derivatives in MY & SG

^ In local currency

~ Inclusive of Labuan, London, Cambodia, HK & Shanghai

The Group’s gross impairment ratio improved to 3.1% as at December 2014 from 3.2% in December 2013, with allowance coverage of 82.7% as at December 2014. The Group’s BAU cost to income ratio was higher at 59.1% compared to 58.2% previously, owing to the lower operating income and higher operating expenses. The Group’s Net Interest Margins (“NIM”) were slightly lower at 2.81%.

Key Operating Ratios (%)
Dec-14 Dec-13
Loan to Deposit (LDR) 93.0 88.4
Gross Impaired Loans Ratio
3.1 3.2
Allowance Coverage  82.7 84.8
Cost to Income
59.1 58.2
NIM 2.81 2.85

As at 31 December 2014, CIMB Group’s total capital ratio stood at 15.1% while its Common Equity Tier 1 (“CET1”) capital ratio stood at 10.1%. This represents a significant strengthening of CET1 by 210bps compared to the 31 December 2013 CET1 ratio of 8.0%, on the back of the RM3.55 billion equity issue in 1QFY14, release of the regulatory reserves by Bank Negara Malaysia (“BNM”) in 4QFY14, as well as the continued Dividend Reinvestment Scheme (“DRS”).

3) CIMB Group 4Q14 Y-o-Y Results

The Group’s 4Q14 BAU operating income was 6.6% lower Y-o-Y at RM3.545 billion as the 6.7% increase in net interest income was offset by a 29.6% decline in non-interest income due to softer Treasury & Markets and lower fee-based income from CIMB Niaga. However, 4Q14 net profit was 76.0% lower Y-o-Y at RM252 million largely due to higher corporate banking loan impairments in Indonesia and Malaysia.

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

On a Q-o-Q basis, the 4Q14 operating income grew 0.5% to RM3.545 billion with the 2.6% growth in net interest income was partially offset by a 4.8% decline in non-interest income from slower capital market activity. However, 4Q14 net profit was 71.7% lower Y-o-Y at RM252 million largely due to higher corporate banking loan impairments in Indonesia and Malaysia.

5) CIMB Islamic

CIMB Islamic’s Y-o-Y PBT increased by 7.1% to RM526 million due to improved Islamic capital markets activity. CIMB Islamic’s gross financing assets increased by 3.4% Y-o-Y, accounting for 13.8% of total Group loans. Total deposits grew by 7.3% Y-o-Y to RM41.3 billion.

6) Other Highlights

On the M&A front, CIMB Group decided to abort the proposed merger discussions with RHB Capital Berhad and Malaysia Building Society Berhad in light of the economic conditions.

In FY14, CIMB Group commenced CIMB Bank branch operations in Hong Kong and Shanghai to facilitate transaction banking requirements of our ASEAN corporate customers. CIMB Thai opened its branch in Laos in July 2014.

7) Target 18 (“T18”) And Key Organisation Changes

On 26 February 2015, Tengku Dato’ Zafrul Tengku Abdul Aziz was appointed as Group CEO. Dato’ Sri Nazir Razak had taken over as Chairman of CIMB Group on 1 September 2014.

On 6 February 2015, CIMB Group Holdings outlined its new T18 plans and key organization changes, with a mid-term target of achieving an ROE of 15%, CET1 ratio of over 11%, a cost to income ratio of below 50% and a 60% consumer banking income contribution by end-2018. The reorganisation exercise will see the creation of new regional divisions, key management changes across the Group, several retirements and will entail forthcoming appointments of new CEOs at CIMB Niaga and Group Asset Management & Investments and a Group Chief Compliance Officer.

As part of the T18 initiative, the Group announced its decision to close its offices in Sydney and Melbourne in Australia. This follows a strategic review of the Group's entire business and to align with its objective of reducing its Asia Pacific investment banking and equities operating cost by 30% in 2015.

8) Outlook

“We go into 2015 with a significantly strengthened capital position, allowing us to better handle the banking industry headwinds. The growth prospects for emerging markets are softer this year and we are making 2015 a year of recalibration with the T18 initiatives providing a platform to make some difficult decisions to streamline operations, implement management and organizational changes to future proof CIMB. Costs will be a primary focus and we have started to streamline our operations and align our cost structures with market realities,” said Tengku Zafrul.

Growth prospects for CIMB Malaysia should track the slower economic environment and moderation in consumer spending. CIMB Singapore is expected to perform positively with continued business expansion amidst steady economic growth, while the outlook for CIMB Thai suggests a gradual improvement in line with the expected economic recovery. Indonesia remains challenged by tight liquidity and slower asset growth although economic reforms are expected to gain traction from 2H15. The Group’s Treasury & Markets and Investment Banking businesses will have to maneuver difficult capital markets conditions given the volatile and unpredictable global markets,” said Tengku Zafrul.