CIMB Group Holdings Bhd is expected to face short-term headwinds that could see its credit cost balloon over the next two years, warned TA Securities.
TA analyst Li Hsia Wong observed that the banking group’s asset quality outlook remained “poor” with management cautioning that cumulative credit cost could balloon to between 150 and 200 bps over the next couple of years.
Non-performing loans (NPL) would likely peak in 2021, Li said in a note today after a teleconference with CIMB’s chief financial officer Khairul Rifaie.
Credit charges would remain elevated on the “back of chunky provisions” for a second oil and gas account in Singapore, weak asset quality and a higher loan moratorium takeup rate in Indonesia, and economic headwinds as well as an increase in corporates seeking to restructure and reschedule their loans in Malaysia.
“Taken together, management guides that annualised credit cost in 2Q would escalate beyond FY20 guidance of 120 bps.
“Overall asset quality outlook remains poor with management cautioning that cumulative credit cost could balloon to between 150 and 200 bps over the next two years with NPL likely peaking in 2021,” Li said.
Topline growth would also be affected by further margin compression, underpinned by policy rate cuts and lower benchmark rates in all key operating markets, she added.
CIMB’s management told TA that the banking group would maintain a “prudent stance” on capital.
“While the group has been able to maintain healthy capital and liquidity levels thus far, given the challenging macro outlook and poor earnings visibility, we opine that in addition to temporarily reviewing the 40-60% dividend payout and/or adjusting the cash payout in the Dividend Reinvestment Scheme, we foresee the possibility of CIMB deferring the upcoming interim dividend,” Li said, reiterating her sell call for the stock.
CIMB opened 0.54% lower at RM3.65 with a market capitalisation of RM36.22 bil after the opening bell today. – July 17, 2020
