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Nikkei Markets

CIMB Group's fourth quarter net profit falls 24% on year

Lender flags pressure on net interest margin as central bank's rate cut looms

CIMB Group is aiming for return-on-equity of 9%-9.5% this year, while keeping dividend payout ratio above 50%.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- CIMB Group Holdings, Malaysia's second-biggest bank by assets, said Friday its net profit fell 24% from a year earlier in the final quarter of 2019 mainly due to higher provisions and one-off costs.

Net profit for the three months ended Dec. 31 totaled 848.64 million ringgit ($201.24 million) compared with 1.12 billion ringgit in the same period last year, CIMB Group said in exchange filing. Quarterly net interest income rose 10% to 2.68 billion ringgit, while net non-interest income rose 13% to 1.09 billion ringgit.

"The group continues to maintain a cautious stance for 2020 in view of sustained global economic headwinds, trade tensions, threat from the Covid-19 outbreak as well as potential further interest rate cuts across the region," CIMB said.

Malaysia's central bank will likely cut its key policy rate on Mar. 3 for the second time in as many months in an attempt to shield the trade-reliant economy from the impact of coronavirus outbreak that has already disrupted global supply chains, according to a Nikkei Markets survey of 11 economists.

That could further squeeze banks' profit margins and weigh on their stock prices. Shares of CIMB Group have fallen nearly 7% year-to-date, while the broader Bursa Malaysia Financial Services Index has declined more than 8% so far this year.

CIMB Group is aiming for return-on-equity of 9%-9.5% this year, while keeping dividend payout ratio above 50%, Chief Executive Zafrul Aziz said at an earnings briefing. The company also expects a 6% overall loan growth this year, Chief Financial Officer Khairul Rifaie said at the same briefing.

Net interest margin meanwhile could contract between five and 10 basis points this year, Khairul said. Malayan Banking, Malaysia's biggest bank, has also warned that its net interest margin could shrink about five basis points this year.

CIMB Group's net profit for 2019 slipped 18% to 4.56 billion ringgit from 5.58 billion ringgit. Return on equity was 9.3% last year, while total loans grew 6.7% in 2019. Net interest margin, a measure of profitability from lending, shrank to 2.46% from 2.5%.

"The year 2020 will be a year of continued investment in our people and technology, to ensure the group's resilience in an increasingly challenging operating landscape," Zafrul said.

Operationally, CIMB Malaysia will maintain "prudent balance sheet growth momentum" while in Indonesia, the company said it expects "reasonable" loan expansion with a focus on cost control and asset quality management.

"The outlook for CIMB Thai is encouraging following the completion of its transformation program coupled with increased cost discipline," CIMB added.

Shares of CIMB Group fell 0.8% to 4.82 ringgit on Friday, while the benchmark FTSE Bursa Malaysia KLCI ended 1.5% lower.

--Jason Ng and Yimie Yong

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