KUALA LUMPUR (Aug 28): CIMB Group Holdings Bhd (KL:CIMB) expects funding cost pressures in Indonesia and competition on loan repricing to weigh on its net interest margin this year.
The pressure may lower its net interest margin, a measure of a bank’s profitability by comparing income from loans with expenses on deposits, by as much as 10 basis points, according to Khairul Rifaie, the group chief financial and strategy officer of the second-largest Malaysian bank by assets.
“Margins did contract on a year-on-year basis for the first half of this year, so we do expect that headwind to continue,” he said at a post-results briefing.
CIMB's net interest margin was 2.04% in the second quarter, down four basis points quarter-on-quarter and 11 basis points on a year-on-year basis amid headwinds in Malaysia, Singapore and Indonesia even as net interest income (NII) improved.
In Indonesia, CIMB is facing tighter liquidity conditions while competitive pressures have made it more challenging to reprice loans following the recent policy rate increase. Indonesia raised its benchmark rate by a cumulative 100 basis points between May and June amid pressure on the rupiah.
Still, CIMB is banking on strong asset growth and pipeline to drive NII growth, Khairul said.
“With our strong pipeline of asset growth, we should still record moderate to good NII growth, which will translate into growth at the bottom line,” he added.
Overall, CIMB expects strong performance of Malaysia and Singapore to help offset the pressure, supported by transformation in Thailand operations to focus on wealth and wholesale banking, group chief executive officer Novan Amirudin said at the same briefing.
“We are a diversified business,” he said. “We have many levers for our business.”