Publicly listed CIMB Niaga, the nation'€™s fifth largest lender, has decided to withhold dividend payments to boost capital as it braces for yet another '€œchallenging'€ year, after suffering a 45 percent decrease in net profits last year. The bank is also planning to appoint a new CEO.

'€œWe will still be facing a challenging situation this year such that we need more capital, which is also essential to support our lending growth,'€ CIMB Niaga vice president director D. James Rompas said after an annual general shareholders'€™ meeting on Friday, which approved the decisions.

The meeting also agreed to appoint Tigor M. Siahaan, former Citi country officer (CCO) and country head of Citibank Indonesia, as CIMB Niaga'€™s new president director, replacing Arwin Rasyid, who resigned from his position in February after serving for more than six years.

• CIMB Niaga will not pay dividends to shareholders in a bid to boost capital
• 2015 will '€˜still be challenging'€™, executive says after booking 45% profit slump last year
• Bank aims to expand lending by 15% this year

CIMB Niaga, part of Malaysia'€™s lending giant CIMB Group, had 15.5 percent in capital adequacy ratio (CAR) as of last year, below the nationwide commercial banking industry'€™s 19.6 percent.

The bank wants lending to grow 15 percent this year, in line with other banks in the industry, a plan that will require more capital. CIMB Niaga will maintain CAR at above 14 percent this year, finance and strategy director Wan Razly Abdullah said.

Last year, CIMB Niaga'€™s loans grew by 12.4 percent to an outstanding value of Rp 176.38 trillion (US$13.6 billion) '€” higher than the 8 percent achieved in 2013 '€” but that was not enough to generate net profits, which plummeted 45.3 percent to Rp 2.3 trillion last year.

Wan Razly attributed the decline in net profits to a number of factors, mainly the rising cost of funds due to competition in the industry to grab customers'€™ funds, slower non-interest income stemming from new bancassurance regulations and high provisioning expenses due to a spike in bad loans.

The bank'€™s consolidated gross non-performing loans (NPL) ratio surged to 3.9 percent by the end of last year from 2.23 percent in 2013, prompting the bank to allocate 88.8 percent of its total loans as a provision for credit losses.

The weakening of the global and domestic economy had negatively affected the bank'€™s customers, according to Wan Razly, especially those who had coal mines and coal-related businesses, causing the bank to experience rising NPL and provisioning expenses.

'€œThe global price of coal has fallen down to $60 per ton from the previous $100 per ton, which affected our customers in coal portfolios,'€ Wan Razly said.

Having laid out its expansion plans and retained earnings to increase capital, Wan Razli said the bank would maintain its plan to enter the BUKU IV large bank category early next year.

Currently, only four banks qualify for BUKU IV status, which is a label used for banks that have core or tier-1 capital of more than Rp 30 trillion each, namely the nation'€™s top four banks: Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI) and Bank Central Asia (BCA).

CIMB Niaga currently has at least Rp 27 trillion in core capital, which qualifies the bank for the BUKU III category, which includes banks with Rp 5 trillion to Rp 30 trillion in core capital.

Shares in CIMB Niaga traded at Rp 795 apiece on Friday'€™s close, unchanged from the previous day. The stocks have slumped about 24 percent in the past one year, underperforming the broader benchmark Jakarta Composite Index'€™s (JCI) 15 percent advance.

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