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CIMB hopes for clean slate next year
Publicly listed lender CIMB Niaga (BNGA) expects to start with a clean slate next year if all the measures currently being taken to cope with its surging bad debts can be fully implemented, the bankâs executive has said
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Publicly listed lender CIMB Niaga (BNGA) expects to start with a clean slate next year if all the measures currently being taken to cope with its surging bad debts can be fully implemented, the bank's executive has said.
CIMB Niaga finance director Wan Razly Abdullah said that Indonesia's economic slowdown had become a bitter pill that the bank had to swallow. 'Some of our customers are facing difficulties in repaying their loans. It will take us some time to solve that, but once we have dealt with the big NPLs [non-performing loans], especially in coal, we'll have a clearer strategy going forward,' he said on Tuesday evening.
CIMB Niaga, part of Malaysia's financial group CIMB, reported a sharp increase in non-performing loans (NPL) both last year and in the first quarter of this year.
Major business sectors such as mining, electricity, agriculture, transportation and construction contributed the most to its rising numbers of bad loans.
Its financial reports show that the consolidated gross NPL ratio stood at 3.9 percent at the end of 2014, rising from 2.23 percent in the previous year. Entering 2015, the ratio continued to surge, reaching 4.1 percent as of March. Wan Razly said that credit quality would continue to depreciate at least until August, considering that the economy was still weak.
He added that the situation had forced the bank to allocate hefty loan loss provisions to anticipate worsening credit quality that, in the end, squeezed its net profits.
The reports revealed that CIMB Niaga suffered from a 45.3 percent year-on-year profit decline in 2014 and a 92.4 percent year-on-year drop in the first quarter.
'We are very conservative. We have raised our loan loss coverage ratio to 103 percent from 88 percent and want to maintain it at around the same level. So, we don't mind taking one or two quarters of low profits and heavy provisions because it will make the bank stronger,' Wan Razly said.
In terms of asset recovery, he said that it continued to hold talks with its debtors and, in some cases, conducted legal actions against them. This year, it expects to recover
Rp 600 billion (US$45.18 million) to Rp 700 billion worth of assets through such measures.
CIMB Niaga estimates that the situation will turn around in August, allowing the bank to record improved profits before taxes well into 2016.
'We are hopeful that we can keep the gross NPL ratio at 4 percent and the net NPL ratio at 2 percent. The NIM [net interest margin] is expected to range between 4.8 percent and 4.9 percent as we focus on high-quality customers,' he said.
Meanwhile, according to Wan, the private lender is in the middle of finalizing the revision of its 2015 banking business plan (RBB). It previously set a lending growth target of 12 to 13 percent.
However, it is now mulling over bringing down the target to 9 to 10 percent and adjusting the third-party funds growth projection to be in line with loan growth.
CIMB Niaga consumer banking director Samir Gupta said that it was reorganizing the lender to be more cost efficient amid the cooling economy, including by improving its information technology (IT) and core banking systems.
This year, it has allocated around Rp 2 trillion for IT spending, the highest budget so far.
