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CIMB Thai cuts dependence on lending

Bank seeks more non-interest income

Malaysia's CIMB Group has assigned its subsidiaries, including CIMB Thai Bank (CIMBT), to turn their focus on to non-interest income (NII) gained from treasury and investment banking and expand cross-selling to drive return on assets (ROA).

The group acknowledged that the banking units should reduce dependence on lending to diversify risk from economic and political uncertainties and increase revenue from NII such as transaction banking.

Subhak Siwaraksa, president and chief executive officer of CIMBT, said that even though his bank had the highest loan growth among its peers and its net interest margin ranked in the top four, it was behind its Thai peers in return on equity (ROE), ROA, cost to income, and NII.

Last year, the bank's NII ratio was 1.5 per cent, lower than the 2.7-per-cent average of the six major banks. Meanwhile, ROE at CIMBT was 7 per cent and ROA 0.7 per cent, compared with 17.2 per cent and 1.6 per cent respectively of the top six banks.

This year, CIMBT targets ROE of 7-9 per cent, while ROA is expected to stay at 0.5-0.8 per cent.

The bank believes it needs to reduce dependence on lending because the current economic and political environments are likely to lead to more bad debt, necessitating high loan-loss provisions, which will affect the bottom line and ROE.

CIMBT plans to normalise provisions this year after setting an excess provision of Bt2.7 billion as a counter-cyclical buffer in 2013.

To improve ROE, ROA and NII, CIMBT must differentiate how it services business deals for Thai companies with aspirations to invest in Asean.

"We have set up a team to cover Asean-focused Thai companies to strengthen the investment banking division in preparing to tap the expected larger flows of investment by Thai companies, especially medium-sized corporates," he said.

Such companies were not only seeking more opportunities in Asean but aimed to diversify risk from domestic political factors, he added.

Narongchai Wongthanavimok, senior executive vice president and chief financial officer of CIMBT, said the bank targeted growth of non-net interest income of 30-40 per cent this year, up from 26.5 per cent in 2013. Similar growth is projected for net interest income despite a lower loan-growth target.

Small and medium-sized enterprises and retail banking, including hire-purchase, are bigger drivers of interest income than large corporates.

"The margin from corporates is small, for which we have to offer other products such as currency swaps and trade finance to compensate. We might allow some customers to move to other banks if we get a lower margin without getting fee income" to make up for it, he said.

One-third of CIMBT's loan portfolio is corporate lending, but that will likely dip to 25 per cent in the near future as such clients have sufficient cash flow and funding sources apart from bank loans. Retail will become the major portfolio at CIMBT in the future, followed by SMEs, he said.

Even though the rate of non-performing loans in the retail sector is likely to increase, there is still room to grow in this segment, so the bank will introduce its first credit card in the Thai market in the second half of this year.

Under its differentiation policy, CIMBT will offer financial products to retail customers who want to make serious money instead of general products as other Thai banks are doing.

CIMBT previously said it was considering restructuring two hire-purchase subsidiaries - Worldlease, a provider of motorcycle financing, and Center Auto Lease, which lends to passenger-car and commercial-vehicle purchasers.

Narongchai said these subsidiaries would contribute to the bank's effort to improve its cost-to-income ratio, with a targeted cost reduction of at least 2 per cent.

The two hire-purchase companies will target loan growth of less than 15 per cent.


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