This article first appeared in The Edge Malaysia Weekly on October 2, 2023 - October 8, 2023

CIMB Group Holdings Bhd group CEO Datuk Abdul Rahman Ahmad’s three-year contract, which was to have expired in June, was extended for two years, enabling the 54-year-old to see through his Forward23+ strategic plan that runs until end-2024.

News of the extension, which The Edge reported in early July, came as a surprise to some in the industry as there were strong rumours that Abdul Rahman had intended to leave the bank.

“I’m not sure how that rumour started, but it wasn’t the case. I am totally committed to delivering Forward23+. I’ve got to deliver. That was my promise to shareholders when I came in,” he tells The Edge in an interview at the group’s Menara CIMB head office in KL Sentral.

Earnest and straightforward, he speaks with us for almost two hours on a wide range of topics in the relaxed environment of his office, which prominently features various toy versions of CIMB’s mascot Octo, a smiley red octopus.

Abdul Rahman has held leadership roles in various industries in Corporate Malaysia, including a three-year stint as president and CEO of Permodalan Nasional Bhd. He was also CEO of Malaysian Resources Corp Bhd, Media Prima Bhd and Ekuiti Nasional Bhd.

Prior to taking CIMB’s helm on June 10, 2020, he was non-executive chairman of Sime Darby Bhd and Velesto Energy Bhd.

The following are excerpts from the interview.

The Edge: What have you done differently to improve CIMB compared to what has been done in the past?

Datuk Abdul Rahman Ahmad: We knew we wanted to maintain our Asean DNA. What we changed was from trying to be everything [to everyone], especially in markets where we do not have scale, to being very, very focused. So, we chose targeted segments to grow in, and we either exited or de-scaled businesses in which we did not have a core competitive advantage.

For instance, in Thailand, we exited the commercial [banking] side. In Indonesia, where we had periodic challenges with asset quality, we initially de-scaled close to one-third of the commercial business and really focused on asset quality. Then, we doubled down on the consumer banking side, growing the business close to 30% over a three-year period. We wanted to make CIMB Niaga (the Indonesian bank) much more of a consumer bank rather than a corporate or commercial bank, and that was a real structural shift because, historically, its strength was in the corporate and commercial side. In Singapore, if you recall, in 2020, we got affected by the structured commodity trade finance business. So, we’ve completely exited the structured commodity finance business, and we went into the SME (small and medium enterprise) and consumer side.

So, it was really this asset portfolio reshaping that has helped put us in a much, much better shape. I would like to think it’s one of the key things that we did that differentiates us from what was done in the past.

In Indonesia, will you look at going into digital banking?

I think our strategy in both Indonesia and Malaysia is to digitise ourselves, make ourselves a digital bank by virtue of our services rather than actually acquiring or setting up a separate digital bank. We don’t believe we need a digital licence to operate like a digital bank.

On asset quality, where do your concerns lie today?

Post-pandemic, I think our customers in Malaysia have achieved some degree of resilience.

There are still pockets or segments that require assistance, but we are tackling that through what we call our BAU R&R (business-as-usual rescheduling and restructuring). In general, notwithstanding the elevated interest rates, we don’t have a significant deterioration in terms of asset quality or a significant increase in asset costs.

Plus, all banks, including us, did [provision] overlays. Some banks have written back their overlays. For us, we have decided to be conservative and reallocate our Covid-19 overlays into other types of overlays. And because of that, we will be in a very good position should there be any asset quality deterioration in Malaysia. For the time being, we are not seeing asset quality incidents or trends that show that there is going to be a large-scale asset quality deterioration.

There are some concerns about your loan loss coverage (LLC), which is one of the lowest in the industry. (CIMB’s LLC ratio was about 92% at end-June.)

The reason we are historically lower is that our GIL (gross impaired loans) ratio is relatively higher than market, given our exposure in higher-risk, higher-return markets like Indonesia. GIL and LLC are interlinked. We want to do better in these two metrics. The focus now is really about improving our GIL ratio because, then, at the same level of provision, you would have a higher LLC.

Having said that, if you look at our LLC now, we are no longer the lowest in the market. We are now at between 90% and 100%. It’s a pretty decent level for players like us that operate on a regional basis.

Do you see M&A on the cards for CIMB? In the past, you’ve said that CIMB needs to ‘earn the right’ to do M&A. Has it earned that right yet?

Yes, I think we’re in a much better position than we were three years ago. But I always believe, for any deal to happen, it needs to meet two criteria. One, it needs to make sense strategically and, two, you need to be able to create value, post-acquisition. We believe those two criteria are met in the case of [our proposed acquisition of] KAF Equities Sdn Bhd. But we do not at the moment see any [M&A] opportunities.

When people come up with scenarios, they often put CIMB together with AmBank. Perhaps it has to do with the Ikhlas Capital factor…

I can’t comment on specifics. But as I said, I’ve not seen any suitable opportunity that meets the two criteria.

So, there have been no overtures made by shareholders of other banks? No one has come forward with any kind of proposal?

No. We are totally focused on our Forward23+ strategic plan.

Do you see banking consolidation happening in Malaysia anytime soon?

The issue with consolidation is that there needs to be clear value creation, post-merger or acquisition. In Malaysia, it’s not so easy to crystallise some of the merger benefits because of our perspective on costs. Globally, most bank mergers tend to be cost-driven; it’s not about revenue.

But consolidation could also happen because key shareholders of certain banks may need to exit for some reason or other, no?

They still need to find the party that actually wants to take the lead, post-consolidation. It’s the party taking the lead post-consolidation that needs to figure out how to crystallise the value of the merger, and that is not easy.

CIMB Bank had some issues in recent years (that is, the double crediting error in 2021 and the frozen accounts in 2022) that cast a spotlight on its IT and technology. Have things improved? Some feel the group is under-invested in terms of IT spend.

We recognise that we had historical legacy incidents that had impacted both our platform and operations. So, over the last three years, we’ve been undertaking significant investment. Capex-wise, we have spent close to RM900 million in each of the last three years. Cumulatively, [that’s] RM2.7 billion, and I think it’s one of the largest investment by any of the local banks.

There are three parts to our investments. The first is really about improving our technology resiliency because, if you recall, there were complaints in the past about [our online banking portal] CIMB Clicks being down and so on. Second, is upgrading and really making sure we address any obsolescence issue. And third, is creating better platforms for us to service our customers.

We have achieved a considerable amount of progress, and not through a lack of investments. If you look at our data on downtime, it really has improved both in terms of the percentage of downtime as well as the frequency of incidents of downtime. I think we are one of the few banks that actually share that kind of data transparently on our website. Of course, we need to do more, and we continue to do more.

Are there any plans to reduce the number of branches in Malaysia?

No, I think we’ve done optimisation of branches. We’re pretty happy with the number of branches that we actually have, which is 217. We see branches now as not just a place for people to transact, but also for the marketing and client engagement part. Even with digital, that personal touch is still something that is very much needed and wanted by our customers.

Singapore’s UOB banking group reportedly saw a significant surge in credit card applications for its Taylor Swift concert marketing campaign. Did CIMB see the same for its Coldplay campaign?

We benefited in terms of CASA (current account savings account). We saw an uptick in CASA with double-digit growth month on month, especially through our Octosavers Savings Account-i, a fully online savings account. It was indeed a very successful marketing campaign for us. Customers with CIMB Malaysia credit and debit cards, as well as accounts, were able to purchase Coldplay concert tickets during the pre-sale, one day earlier than anybody else.

Is the plan to do more of these?

Yes. To tell you the truth, because of Covid-19 and our focus was on cost, we did trim down our marketing and branding spend. We are now in the right position and at the right time, as we have the right platform to expand and be more aggressive [on those fronts].

In Singapore, several people were arrested for suspected money laundering, and CIMB was among the banks they reportedly used, but there are not much details on this. What can you tell us about it?

All I can say is, rest assured, CIMB is committed to governance and we adhere to the highest standards in terms of the AMLA (Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001) requirements. So, on that, you must understand, the role of banks is to report if there are suspicious transactions.

On dividends, there are expectations from shareholders that you will be more generous.

We just increased our DPR (dividend payout ratio) from 50% to 55% in 1H2023. If you look at our history, this is what I think is one of our most positive achievements.

Will it move up to 60%?

We have to take it step by step. We need to see what unfolds. There are still risks in the market that we need to be careful about.

Is CIMB’s digital assets and group funding division still loss-making?

If you talk about that purely on the digital investment collectively, they are. But I think a lot of the businesses that we do, particularly on the Philippines side, are already showing a path to sustainability. The Touch ’n Go side is already profitable. [Collectively, as a division,] our target is to turn around within the next two years. This will provide us with earnings addition rather than dilution. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.