CIMB deepens push in Thailand, Indonesia
Group chief executive officer (CEO) Novan Amirudin said while Thailand's domestic growth remains challenging, cross-border activity is on the rise as Thai corporates expand abroad.
CIMB, he added, continues to play an active role in facilitating these transactions.
'Thailand is facing a number of economic headwinds, with the last major investment cycle centred around petrochemicals and automotive. It has been a while since the country saw large-scale investments.
'There is also a heavy reliance on tourism and while the numbers in tourism have returned, spending has yet to recover to pre-Covid-19 pandemic levels.
'As an operator in Thailand, CIMB is also feeling the impact of these issues. Nonetheless, Thailand remains a key part of our overall franchise because it completes our Asean proposition,' he said during the Asean Media Day at the bank's headquarters yesterday.
Meanwhile, Novan highlighted Islamic banking as a promising area for CIMB's Indonesian arm, noting that although Indonesia has the world's largest Muslim population, Islamic banking penetration remains low at only 8% of the market.
In comparison, Malaysia's Islamic banking penetration stands at 50%.
'Where I see CIMB Niaga Syariah playing a key role in the Indonesian market is through the product innovation and the solutions we can bring to Indonesia.
'There are a lot of lessons that we have learned from the Malaysian market, and if we can marry that with the domestic nuances of operating in Indonesia – the different perspectives, cultures, and requirements – we can offer Indonesians a good alternative to the banking products available today.
'I do see that there are a lot of areas for us to play in, given that the penetration is only at 8% and the demand for such services is high,' he said.
For the six months ended June 30, 2025, CIMB's Thai banking arm saw a 21.8% year-on-year (y-o-y) decline in net profit to 1.01 billion baht (RM132.45mil).
CIMB Thai Bank PCL, a 94.83%-owned subsidiary of CIMB, attributed the softer performance to one-off items, including adjustments in revenue recognition under the effective interest rate methodology and an additional expected credit loss overlay.
CIMB Thai president and chief executive officer Wut Thanittiraporn said in a statement that these were 'proactive measures taken to strengthen the bank's financial resilience in the long term, and were not a result of any deterioration in asset quality'.
CIMB Thai's consolidated operating income contracted 257.8 million baht or 3.7% on a y-o-y basis.
The decline was mainly due to a 13.6% drop in net interest income to 646 million baht, driven primarily by lower interest income on loans.
This was partially offset by higher net fee and service income of 30.5 million baht.
On a broader outlook, Novan said the bank is 'in a good place' and its portfolio remains 'extremely strong' despite uncertainties from tariffs.
When asked if CIMB expects a decline in earnings for financial year 2026, he said the group will 'do what it takes to be nimble, to pivot its strategies by looking at its efficiencies, portfolio, credit losses, non-interest income and cost of funds to mitigate the impact from tariffs.
'Assuming tariffs continue to rise, this will inevitably impact the broader economy through increased costs and shifting supply chains.
'If economic growth slows, loan growth will also slow – and loan growth is one source of income for banks.
'However, it is more complex than that as a bank's interest income comes from loan growth, as well as what it makes from the net interest margins, which in turn are influenced by the financial institution's cost of funds versus its credit spread that is tied to the customer risk profiles it onboards,' Novan said.
He added that in a declining interest rate environment, as seen in recent months, interest margins have narrowed, leading to lower interest income.
'However, interest income is not the only income that we make as a bank. About 30% of our income comes from non-interest income, such as fees, foreign exchange, payments, and advisory services.
'This is an area where CIMB has been extremely active and forms a critical part of our Forward 30 plan, where we plan to increase this portion of our income.'
Novan also noted that tools like artificial intelligence are being deployed to enhance the bank's efficiency.
He pointed out that another key component of the profit and loss statement is credit losses.
'If a bank grows loans very aggressively, takes on a lot of high-risk customers, then its risk of credit losses will be a lot higher.
'At CIMB, we have reconstituted our portfolio over the last few years.
'We have exited businesses that were very hard to operate.
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We have reduced our risk profile and credit losses as well as increased our coverage ratio.
'We are in a good place. Tariffs are just one factor that would impact a bank's financials. What is important is how we choose to play with different levers to offset the impact it brings,' he said.
Meanwhile, CIMB chief investment officer fixed income Ng Boon Hoa said the bank remains 'neutral' on the Malaysian market because 'the catalysts have been quite lacking'.
'Policy support and foreign direct investment flows have been relatively muted after a strong run last year.
'There is also some lingering uncertainty surrounding tariffs, seeing as Malaysia has not struck a trade deal with the United State. It remains to be seen whether the country can close the deal.'
Ng also noted that first-quarter earnings were relatively muted, growing only 1% to 2% compared to last year where the country had an earnings growth of 10%.
'That has not translated well into the equity market, and we do not think it paints a very positive picture moving forward,' he said.
Ng added that the wider scope of the sales and service tax has caused 'a bit of concern about higher prices and inflation and also softer consumer demand'.
'The inflection point, however, will probably come from the foreign flows. Foreign holdings are actually quite low in equities in Malaysia. Any pickup will be positive.
'Foreign direct investment – particularly in data centre developments across the Johor-Singapore Special Economic Zone – could provide a lift to Malaysian markets.
'We have a FBM KLCI target of around 1,600, based on a reasonable 14 times price-to-earnings ratio,' he said.
CIMB continues to favour high-yielding sectors such as banking, utilities and construction.
'We think they are quite good in terms of valuations,' Ng said.
He noted that the ringgit's strength could also play to the benefit of the Malaysian equity markets.
'The Singapore dollar and the ringgit are expected to appreciate against the greenback in the second half of the year.
'Hence, we still like Malaysian and Singaporean bonds, which deserve an allocation of investors' assets as they are considered safe havens, particularly from a currency perspective,' he said.
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