CIMB Group Holdings (CIMB MK) expects to see a continued marginal contraction to its net interest margins (NIMs) QoQ in 2Q23, before recovering in 2H23.
Maybank Investment Bank (Maybank IB), in a research note today (July 26), said positively, however, the Net Order Imbalance Indicator (NOII) continues to be robust and will likely provide some offset.
CIMB’s Niaga 2Q23 results are scheduled to be released on 31st July, while CIMB Group’s results release is targeted for 30th Aug.
Maybank IB maintains their forecasts for CIMB Group, but raise our TP to MYR6.15 from MYR5.85, on rolling forward valuations to FY24, on an unchanged PBV of 0.9x (FY24E ROE: 9.8%).
Margin pressure abating Following from our recent meeting we understand that margin pressure persisted and net interest margins (NIMs) are likely to have further compressed QoQ in 2Q23, but only to a marginal extent.
Into 2H23, NIM pressure is likely to persist in Singapore, but the group expects to see improvements across its other key markets and for NIMs to be stronger in 2H23 versus 1H23.
NOII holding up Loan growth momentum appears encouraging, as the group targets loan growth of 5-6% for FY23.
Positive as well is the fact that group non-interest income (NOII) was stronger QoQ in 2Q23, driven predominantly by higher trading and forex income, as well as other income for example from interest rate swaps.
Looking to manage loan loss coverage Impaired loans are still rising at this stage and will likely continue to rise throughout the rest of the year, but prevailing overlays are more than sufficient to buffer against this increase.
The group has been actively reallocating its management overlays and will look to maximise overlay allocation, while strategising to reduce the size of its impaired loans portfolio, so as to improve its overall loan loss coverage, which stood at 99% end-Mar 2023.
Meanwhile, RHB Equity Research said at the recent CIMB’s pre-closed period meeting, RHB gathered that NIM pressure appears to be alleviating, with a 2H23 recovery being a possibility. Overall, its 2Q23 operating income looks decent and, while delinquencies ticked up, ample provisioning buffers will help shield the impact on earnings – 2Q23 results (out on 30 Aug) should be on track to meet our and consensus expectations.
RHB’s thesis that efforts to reposition the group are bearing fruit remains unchanged with CIMB being on of their sector Top Picks.
RHB maintains BUY and MYR6 TP, 10% upside with c.5% FY23F yield.
On the flip side, investment bank deal flows were muted in 2Q, but management sees a pickup in 2H as the deal pipeline for MY looks good. Other efforts to sustain Non-II include ongoing NPL management to reduce the volatility of such gains, as well as the redeployment of liquidity in Singapore (SG) into treasury and markets products (vs loans) – better NonII, but with some impact on NII and NIM.
NIM – bottoming process underway: CIMB guided that group NIM would compress QoQ, albeit at a significantly smaller delta vs -31bps QoQ in 1Q23.
In Thailand and IND, efforts to raise NIMs have started to be felt in 2Q, and the 2H23 trajectory looks positive. For MY, the repricing of maturing longer term deposits from the cumulative overnight policy rate (OPR) hikes will continue to weigh on 2Q NIM, but CIMB highlighted that following May’s OPR hike, asset yields have been repriced.
At this time, deposits rates were maintained, which will be positive for 2H NIM trajectory. In Singapore, while liquidity has been flush, NIM has peaked and is expected to continue to remain under pressure ahead due to the ongoing repricing of deposits and, as mentioned above, the redeployment of liquidity into treasury products.
Uptick in delinquencies, but sufficient provision buffers to absorb: Retail delinquencies have continued to rise due to inflation and from certain quarters where income streams have yet to normalise. The rise is still within CIMB’s expectations and, more importantly, its overlays have been able to absorb the impact.
Management sees delinquencies peaking in 4Q23. Also, CIMB has reallocated the bulk of its pandemic-related overlays to segments vulnerable to inflationary pressures – it has frontloaded potential provisioning, should the rollback in subsidies materialise.
Finally, CIMB said its dual pronged approach to LLC levels targets both the level of provisions and GIL levels, so RHB should see more proactive GIL management ahead.
