Good afternoon, everyone. Ladies and gentlemen, welcome to CIMB Group's financial results briefing for the second quarter of 2025. Our host today for CIMB Group is the CEO, Novan Amirudin, and Group CSO, Khairul Rifaie. My name is Steven from the CIMB IR team. You should have received the analyst presentation and financial statements by email by now. Otherwise, you may find the documents in the investor relations section of our website, at cimb.com. Before we begin, please be informed that this briefing is recorded.
I would like to encourage everyone to include your name and company on the Teams app to allow us to better identify you. Please note that all participants' lines are currently on mute, and you have the opportunity to ask questions after the presentation by using the raise hand function. At this juncture, I would like to hand over the briefing to Novan and Khairul. Novan, over to you.
Thank you, Steven. Thank you to everyone for joining us on this Friday afternoon, which is approaching towards a long weekend for those in Malaysia. It has been a resilient first half 2025 performance, for CIMB Group. I would call it a perfect storm of macro headwinds, increased volatility, but more specific to CIMB itself versus our other listed Malaysian peers, FX translation effects that we observed during this period. If you track, for example, the Rupiah-Ringgit exchange rate, for the first half of 2025 versus, first half of 2024, it did depreciate more than 6%, and Indonesia being 25% of our business, that FX translation effect did have an impact on our overall consolidated numbers.
Although on a reported basis, you would see net profit down by about 0.9% for the first half of 2025, if you look at it on a constant currency basis, we are up 3.3%. What this means is, the business engine is still working. The businesses are still increasing number of customers, increasing cash, increasing AUM. We still have asset growth, but it is more on the currency side, versus, our other listed Malaysian peers. You will see later, in the presentation as Khairul goes through each respective country, Malaysia actually has stand out as a top performer within our portfolio. NIM has expanded four basis points as a result of our deposit-led strategy. Income is up close to 4% year-on-year and PBT up, more than 7.5%, year-on-year. Khairul will basically take you through those details later.
Back to our first half 2025 overall performance. We delivered 11.1% ROE. The key drivers are, number one, our second quarter 2025 operating income grew 1.9% quarter-on-quarter. This is on both NII and NOII increases. PPOP increased 4.5% quarter-on-quarter. Why this is important, the quarter-on-quarter increase, shows that our momentum is basically improving, when you compare to the first quarter, with all the heightened volatility involved. We're very pleased to see the improvement in terms of business momentum when you look at quarter-on-quarter. While year-on-year there are FX translation effects, when we dissect into quarter-on-quarter, we're seeing a much stronger momentum. When we look at NII itself, that's up 0.4% quarter-on-quarter, despite the continued rate cuts that we have seen in Indonesia, Thailand, and Singapore.
I would credit this to our deposit-led strategy and our active cost of funds management, where we've managed to hold NIM steady at 2.15% in the second quarter of 2025. This is now three straight quarters of where we've managed to hold NIM steady despite the aggressive rate cuts that we've seen in those three markets. To balance out the rate cuts, apart from reducing cost of funds, we also grew our asset base. Total assets on a constant currency basis grew 6.1%, off that 6.1, loans grew 3.6%. Per our strategy from last year, we ensured that it was responsible growth, and we did not want to compromise asset quality.
If you dissect further into our loan numbers, later with Khairul, you will see that the consumer and commercial engines are still running and growing in line with the respective GDP rates, in each of their respective markets. Where loan growth is down, is wholesale. On the wholesale side, we are currently observing two things. One is on the loan side, it's pretty much a timing difference because it depends on when our customers would deploy funds towards CapEx and investments, and we're in active discussions with them on that. We're also observing a lot of corporates going to the bond markets to raise financing. Throughout Malaysia, Indo, Singapore, Thailand, for example, if you look at the local currency DCM market, that is up 16%, and we have maintained our market share as one of the leading bond issuers in the region.
On NOII, that grew 5.3% quarter-on-quarter, that is really driven by strong trading income of about 10.4%. Moving away from the income line, on the cost side, we continue to exercise cost discipline. Operating costs declined by about 1%, bringing our cost-to-income ratio to 46.2% for the first half of 2025. We're still maintaining that 46% level that we've maintained throughout last year. This is not at the expense of our investments in technology and operational resilience. In fact, our tech cost-to-income ratio is at 7.9%, which is in line with the guidance that we have been providing to the market, where we're going to budget about 8%-9% of our revenue every year towards tech costs. Asset quality, we continue to ensure that we are disciplined with regards to balancing credit costs, GIL, as well as our coverage ratios.
We've continued to be reallocating our overlays. That brought first half 2025 credit costs to about 29 basis points, with allowance coverage ratio maintaining above 100%. GIL has improved quarter-on-quarter and year-on-year. It's now 2.1% as of June 2025, reflecting strong asset quality across all markets. I think one market that has gotten quite a bit of attention is Indonesia. You would have seen NPLs coming up in Indonesia, but not the case for CIMB. We continue to demonstrate one of the strongest asset qualities in Indonesia, with one of the strongest NPL ratios. As a result, we are proposing a MYR 2.1 billion first interim dividend, which is a payout ratio of 55.5%, which is consistent with the payout ratio that we have been paying out over the last couple of years. Our CET1 ratio remains strong at 14.7%.
I know there's a lot of discussions with regards to our CET1 levels and what is the right capital level. In our view, this provides us flexibility to optimize shareholders' returns at the appropriate time. I want to provide you some updates in terms of the strategic initiatives that we have done over the last quarter to deliver sustainable long-term value for our stakeholders. I'll start first with what we have announced. We continue to double down on our OCTO consumer app, and what we've really focused on over the last quarter is increasing our digital wealth offerings. If you're in Malaysia, for example, you can now subscribe to a number of investment products via the app, and we've done similarly also in Singapore and Indonesia.
On the business banking or commercial banking side, we have announced a couple of ecosystem plays, one healthcare ecosystem in Malaysia, involving a couple of anchors, where it's a digital play for us to fund players within each of the healthcare ecosystem players, mainly Pharmaniaga and Remedy. In Singapore, we also launched a shopping mall ecosystem with Frasers. What is interesting is, we've just rolled out a new revenue-based loan in Singapore called CIMB FlexiPay, and this is really looking at our customers' cash flow profile, and the algo will generate a loan amount that our customers can draw on. Very different from the type of products that you see in the market today. A lot of the SME financing is very collateral based. We now want to start to use data and do more revenue-based financing. It's a project that we started in Singapore.
Johor Singapore Special Economic Zone, a lot has been discussed about that in the public domain. We have committed MYR 10 billion of financing over the next three years. We are in a lot of discussions with a number of corporates that are looking to expand into the zone. On the sustainability side, we have committed MYR 300 billion of green financing by 2030. With regards to our people, we have committed MYR 100 million this year for training and upskilling in digital and AI. On the social side, we've committed MYR 200 million to invest in our local communities over the next five years. What is coming next over the next couple of months? First, in October, we're going to launch what we call OCTO Biz. This is a similar digital offering, so it's an app, but it's going to be used by our business clients.
While CIMB consumer clients use OCTO, our businesses will use OCTO Biz. It is a far superior app compared to what our business clients are currently using, and we're going to launch this in Malaysia and Indonesia. It's currently undergoing pilot testing. With regards to the ASEAN Business Summit, Malaysia as the host of ASEAN this year, CIMB will be sponsoring the business summit in ASEAN in October 2025. A recap of our six-year strategic plan, which we call Forward30, which is anchored on our purpose of advancing customers and society. How are we going to advance customers and society? We call it the four Cs, capital, cash, cross-sell, and capabilities. We are executing four Cs throughout the entire organization. I'm now going to provide you an update in terms of how are we doing with the execution of the four Cs. First is capital.
We've announced a dividend of MYR 0.1975 per share, 55.5% payout ratio. One area that we've been mobilizing quite a bit of capital over the last few years is on the digital side. Touch 'n Go, which today serves 30 million people in Malaysia and two million merchants, has continued to sustainably be profitable throughout the first half of 2025. It started breaking even towards the end of last year, and it has maintained being profitable in the first half of 2025. The reason really is due to e-money transactions becoming a complementary source of customer payments within the country to complement credit cards as well as debit cards. On the second C, cash, you would see on the table in the middle of the page, Thailand, Indonesia, Singapore went through a lot of rate cuts since last year.
Due to our active deposit-led strategy, where we're rebalancing between CASA as well as term money, like fixed deposits and money market deposits, as well as alternative funding, we've managed to actually reduce our cost of funds by 18 basis points year-on-year and 10 basis points quarter-on-quarter to mitigate the effect of the rate cuts that is pressing down our loan pricing. As a result, NIM has remained stable at 2.15% in the second quarter and 2.16% for the first half of 2025. The third C on cross-sell, if you focus on the bottom left-hand side of the page, one data which I would like to call a leading indicator of growth for our business, is number of customers as well as AUM. Number of customers grew 5.4% year-on-year and 0.8% quarter-on-quarter.
AUM grew by a larger number, 10.9% year-on-year and 1% quarter-on-quarter. We also saw deposits in CASA grew quite significantly. CASA grew by 10% year-on-year, and Khairul will elaborate further on that. This data is very encouraging because this shows that as business confidence starts to gradually improve and return, given the increased level of certainty we're seeing in the market, we do believe that all these new customers that we've onboarded and have parked cash with us will start to put that cash to use, and that is potential future business for us. On the fee and commission and treasury client sales side, we're also pleased to see that these numbers continue to increase. This is what I call client franchise numbers, both growing 2% and 3.3% over the year.
We did see some declines quarter-on-quarter for these two line items, but it is also attributable to timing differences in terms of what our customers are planning, customers putting on hold certain big decisions as a result of the uncertainties in the last quarter. Given the increased certainty with the tariff rates announced, we do believe business confidence is gradually improving. On our capability side, the fourth C, we have continued to remain disciplined with our cost control, but not sacrificing our investments in technology and resiliency. As part of Forward30, we also launched what we call the SBF Lab. SBF stands for Simpler, Better, Faster, and if you go throughout CIMB Group today, everyone will be talking about Simpler, Better, Faster. It is about us making processes and work a lot more simpler, a lot more straightforward.
Sometimes we tend to like to overcomplicate things and make things complex for ourselves. We want to cut the bureaucracy and make things simpler, better, and faster. We have introduced a lab, which is staffed by a team that are experts in Agile way of working, as well as experts in PMO, and also the lab contain tools for businesses to come and redesign their processes in the lab. It is a bottom-up approach, the various businesses across the group at the moment, even though it is just been launched a couple of months ago, 24 projects have been submitted to the lab to redesign their own internal processes. With regards to data and AI, we are now in the stage two of our AI journey. We view the AI journey in four stages. We are now in the stage two where we are deploying role-specific AI assistance.
We are now piloting it to support our RMs on the wealth side, as well as deploying it in our call centers. Still at the pilot stage, but we are tracking the productivity data closely. I mentioned just now about us enhancing our OCTO consumer app over throughout the region, especially on the wealth side. Since the last couple of months of introduction, we are seeing encouraging numbers in terms of transactions that is going through the app on the wealth side. We strongly believe this new capability being introduced will help in our NOI generation moving forward. With that is the report card of our Forward30 execution to date with regards to the four Cs. I will now hand it over to Khairul to walk you through the rest of the presentation. Khairul, over to you.
Thank you, Novan. Good evening, everyone. I will skip slide nine. Those are the half-year numbers, but what I want to elaborate a bit more is on slide 10, which is the business highlights. Like what Novan mentioned in terms of our quarterly performance on operating income is strong, and that is really driven by a very good positive momentum coming through in Malaysia and also Singapore, with Malaysia growing at 4.5% quarter-on-quarter, and Singapore growing at 1.1%. What I want to highlight here as well, you can see on the year-on-year momentum, it is impacted by the FX translation. You can see the breakdown in terms of Indonesia, mainly because of FX, that came off on a year-on-year basis by 11.1%. Similarly, if you look at Singapore, the growth has been fairly flattish.
As you can see here from an overall operating income, if you exclude the FX impact, the growth on a year-on-year basis operating income is commendable, given the challenging backdrop. We grew on a constant currency basis at 2.7% year-on-year. You can see Indonesia, from a negative, is recording a flattish sort of growth when you exclude the FX impact. More positively, if you look at Singapore from a flattish sort of growth, including the report in Malaysian Ringgit , in a local currency basis, Singapore is showing good, strong underlying growth on a year-on-year basis at 5.7%, driven by both NII and NOI. On NIMs, as what was highlighted under cash, we have been very active in terms of our liability management. This resulted in the stable NIMs in the past few quarters, where it has been particularly positive, driving the stable NIMs is in Malaysia and also Singapore.
Moving on to slide 11, in terms of the segmental PBT, firstly, on consumer banking, the flattish growth is really driven by a very strong in terms of provision being lower on a year-on-year basis. This was partially, but was offset by some margin headwinds coming through on a year-on-year basis. On a quarter-on-quarter basis, our PBT was down because of the absence of ECL write-back that we recorded in the first quarter as we deployed a new model. On wholesale banking on a year-on-year basis, that's slightly down. We recorded very strong treasury markets operating income. However, this is offset by weaker corporate banking top line. On a quarter-on-quarter basis, it's really driven by the absence of a Niaga write-back last in the first quarter compared to the second quarter. On commercial banking, the year-on-year variance is mainly driven by the reallocation of overlays.
The strong performance on a quarter-on-quarter basis is really driven by stronger NOI, driven by the NPL sale in Niaga that was recorded in the second quarter. On CBA and group funding, both on a year-on-year and quarter-on-quarter basis is driven by good performance on group funding and also CBA, particularly on the top line. Slide 12, on the performance by country. The strong Malaysia year-on-year growth is driven by what Novan mentioned in terms of the NIM expansion, expanding by 4 basis points, driving the year-on-year NII growth of 7%. Asset quality has also been good and stable, and as a reflection of that, ECL was also slightly lower on a year-on-year basis. Quarter-on-quarter, very strong performance in terms of NOI growing by 7.7%, driving that PBT performance, in addition to some lower ECL in Malaysia on a quarter-on-quarter due to the timing of the reallocation of overlays.
In Singapore, on a year-on-year basis, top line, like I mentioned, was strong at 5.7%. However, we did have a more significant write-back in 2024. Similarly, somewhat on a quarter-on-quarter basis, the lower profit is because of the absence of a write-back on the ECL that was recorded in the first quarter, that was higher in terms of the write-back. In Indonesia, given the backdrop of challenging liquidity, especially in the first half of the year, we did experience a NIM contraction, and that is mainly driving that year-on-year contraction in PBT. As you may have heard already during the Niaga results, the outlook in terms of liquidity has improved, and we are slightly a bit more positive going into the second half of the year. On a quarter-on-quarter basis, we had a very good momentum on the top line driven by the NPL sale in Niaga.
That was offset by the absence of that NPL write-back in the first quarter in CIMB Niaga, in corporate banking. Thailand, both on a year-on-year and quarter-over-quarter basis, we have some challenges in terms of the top line. On the quarterly weakness, in addition to the top line, we had some one-off adjustments in terms of the provisioning side. Moving on to slide 13, in terms of the breakdown of our P&L, firstly, on NII, in terms of the backdrop, there was a lot of downward movements in terms of rates. You can see in terms of our NIMs, the driver of that stable NIMs, like I mentioned, is really driven by Malaysia and also Singapore expanding on a quarter-over-quarter basis.
Firstly, Malaysia, the slight expansion of one basis points is driven by the fact that we are driving our liability, and we managed to reduce our expensive wholesale money markets, and also the rates on the wholesale money markets was also more positive because of the reduction in volumes. That helped us expand our margin in Malaysia during the quarter. In Singapore, the 16 basis points expansion, we did experience a significant pressure on SORA. In the second quarter, our liabilities pricing caught up. There was also some high expensive campaigns on the liability side that came off during the second quarter, and therefore, benefited that margin in Singapore. In Indonesia, we did see some pressure on the yield because of the rate cut here. I mentioned in terms of the outlook is slightly turned a bit more positive on the liquidity.
We did gain quite a lot of volumes towards the latter part of second quarter with our rates on the liability side being maintained, and therefore, we should see some positive momentum on the liability side. We did experience a rate cut a few weeks ago in Indonesia, that could potentially offset some of that positive. In Thailand, two drivers. Firstly, of course, the policy rate movements did have an impact, a negative impact in Thailand. Another is a one-off impact as we enhanced our calculation in terms of our effective interest rate, which is more of an accounting calculation, we need to because of the enhancement in terms of account level calculation, we had to do a one-off impact of about MYR 30 million, and that impacted on the NII, and that impacted our margin during the quarter.
On a year-on-year basis, this is the point where we have really proactively managed our liability, and you can see that improvement coming through in Malaysia. I would say even in Singapore, that four basis points contraction is a real reflection of the fact that we managed to mitigate a lot of the SORA pressure that we experienced during the first half because of the flush liquidity that we have for CIMB Singapore, but also because we've managed our CASA and liability very well there. In Indonesia and Thailand, the contraction is really a reflection of the challenging backdrop and also the significant policy rates movement in Indonesia. As a result of the margin compression on a year-on-year basis, you can see that five basis points, our NII was fairly flattish year-on-year, despite very decent asset growth. Slide 14 on NOII.
This is where I would describe the momentum as being fairly robust, given the high base that we were coming off from during the first quarter. You can see that firstly, that's driven by fees and others of 11.4% growth, mainly on the other income where we recorded during the second quarter, the NPL sale in Niaga of about MYR 60 million. Trading and effects, we managed to maintain that exceptional level of [inaudible] million in the first quarter. That continued in the second quarter, That's really a reflection of our good trading performance, which grew by 10% Q- on- Q. On a year-on-year basis, we were impacted in terms of the other income, That's why if you look at fees and others, that came off by 5% year-on-year.
Last year, in 2024, we recorded about MYR 160 million of NPL sales, the bulk of that MYR 160 million coming from Niaga. This year, so far, in the first half of the year, we recorded about MYR 60 million. The pipeline for NPL sale is fairly positive coming through in the second half of the year. Trading and effects are slightly lower by 2.5%, What's important that we are factoring, if you look at the client franchise business, is still growing well at 3.3% year-on-year. On operating expenses, this remains well under control, If you look at second quarter, that came off slightly by 1.1%. Some of the tactical initiatives that we started at the beginning of the year are starting to come through during the second quarter, Those tactical savings have come through in all those lines of personnel, establishment, and technology.
For example, we did look at some of our property portfolio and how we want to optimize the cost on our property portfolio, That has driven the lower establishment costs. Some of the projects, in terms of capitalization and depreciation, because of the investments that we're making, we have technically gotten some write-back coming through under personnel and also technology. All in all, some of these tactical cost savings has resulted in about MYR 50 million tactical cost saving during the second quarter. If you exclude that, or even on an underlying basis, our cost has fairly remained relatively stable Q- on- Q. You can see on a year-on-year basis, it is flattish. The technology cost here on the reported basis is flattish.
If you exclude some of the tactical cost savings under technology on an underlying basis, technology is growing somewhere around the mid single- digit, a reflection of the continued investments that we're making under the technology line. What's driving the overall costs slightly higher, if you look at marketing both on a Q- on- Q and year-on-year basis, that's driven by the increased campaigns that we are doing, number one. Number two, we are also accelerating or putting more intensity in terms of our group branding. Lastly, the revenue to get free coming through from Philippines has a related variable partnership cost that has increased on a year-on-year basis. Moving on to asset quality. If you look at the ECL numbers, I think overall, what I wanted to highlight on an overall basis that the underlying asset quality itself remains stable.
A lot of the variance in terms of the movement Q- on- Q is really about the timing of the reallocation of overlays. If you recall last year, we did reallocated our COVID overlay into this new form of risk of inflation, mostly on the retail segment. That has, in terms of the observation period, has come off. We have reallocated that overlay this quarter into the macro uncertainties risk overlay. That reallocation amounted to about MYR 500 million this quarter. If you recall, last quarter, we did an initial amount of about MYR 100 million during the first quarter. In terms of the chart itself, if you look at the segments, in terms of the write-back, that's what I mentioned, where last quarter we recorded a bigger write-back coming through in Niaga.
If you look at the non-retail side, we did record some write-backs improvement in asset quality on some of the lower-rated commercial loans in Malaysia. There was an upgrade on some of those loans, which resulted in the write-back. On the consumer side, the last quarter was slightly lower because of the model deployment of an enhanced new model on the unsecured product, and that resulted in the write-back last quarter. The absence of that is a normalization on the retail. If you look at it from a credit cost perspective, it's fairly stable at 29 basis points, well within our midpoint of our guidance of 25-35 basis points. If you look at our credit cost ratios, it's been fairly stable over a few quarters and has improved on a Q-on-Q basis.
In terms of allowance coverage as well, we've maintained it to be above 100%. On slide 17, on gross loans, this was also impacted by the FX translations. If you look at it on a constant currency basis, we're normally highlighted, we're growing at 3.6% on consumer and commercial banking, both on a Q-on-Q and year on year basis. The momentum continues to be good, and that's mainly driven by Singapore and Malaysia across consumer and commercial. Wholesale banking, the negative growth is mainly driven by Malaysia. We are expecting that growth to pick up in the second half of the year as the pipeline is strong. If you break down the Malaysia growth of 2.6%, our consumer is growing at 4.1%, commercial is growing at 5.8%, where it brings down the average to 2.6% is on the wholesale side.
On the other hand, Indonesia's growth of 6.8% is driven by the wholesale growing slightly higher than that. Singapore is mainly on the SME segment, driving that growth. Thailand is a reflection of the tough backdrop on the sector, and the contraction in Thailand is driven by negative growth of wholesale banking. On the deposit side here, the story here is mainly on CASA. If you look at the momentum on CASA on a quarterly basis, we're growing well at 1.4%, similarly on a year-on-year basis. This is really driven by the non-retail side, both on commercial and also wholesale. Most of that growth is really on CASA, on commercial and wholesale.
Consumer banking, that negative growth is intentional, coming through from Singapore, like what I mentioned earlier, that we have maintained in terms of the NIMs by being very nimble on the campaign rates and also the pricing on the consumer Singapore FD. That's driving that Q-on-Q and year on year contraction. If you look at the strong momentum on CASA across all our countries from a Q-on-Q basis, we are showing improvements across. Slide 19, we've covered this earlier in terms of our dividends. In total, we are paying out MYR 2.1 billion dividends, and we are maintaining our payout ratios. On slide 20, our capital ratios has remained fairly stable and strong. Similarly, in terms of our liquidity ratio, where we are having a very good and strong liquidity ratios. Slide 21, moving on to the performance by segment.
Here, a bit more detail in terms of the performance, where you can see on consumer banking, the contraction is really driven by the higher ECL, and this is really a reflection of the timing of the overlays and what I mentioned earlier in terms of the write-back in the first quarter related to the model deployment on the unsecured, which will result in about MYR 100 million write-back last quarter on the ECL for consumer. On a year-on-year basis, flattish growth, we did experience some margin compression on the consumer business, which impacted the top line. That, however, was offset by lower ECL on a year-on-year basis, mainly coming through lower ECL in Malaysia and also Indonesia. If you look at the gross loans on a constant currency basis, we grew loan by 4%. Like what I mentioned earlier as well, Malaysia driving that growth of 4.1%.
Within the deposit line, CASA grew by 7.3%, that's driven mostly by Thailand and Singapore. Commercial banking, the good growth during the quarter was driven by strong NOI because of the NPL sale coming through in Niaga. On a year-on-year basis, similarly, the operating income growth was driven by NOI. We did have an higher ECL due to the timing of the write-backs. Last year, we had quite a significant write-back coming through in Singapore under commercial. On loans, on a constant currency basis, we grew by 7.7%, with Malaysia growing at 5.8%. If you look at the deposit number within that, CASA grew by 6.3%, with Indonesia and Singapore driving that number. Wholesale banking on slide 23, the contraction in PBT was driven by the fact that we recorded a Niaga write-back last quarter amounting to an MYR 80 million write-back in first quarter.
The absence of that resulted in the PBT kind of going lower Q-on-Q. Year on year is mainly driven by the top line, where the strong treasury and markets operating income growth year- on- year of about 10% is offset by the corporate segment. The negative growth on loans is mainly driven by Malaysia and also Thailand. On the deposit side, on CASA, that's a big driver of that 4.6% growth. CASA, on a year-on-year basis, grew by 19%, that's driven by Malaysia, Indonesia, and also Thailand. On CDA and group funding from an overall perspective, the good growth on operating income is driven by both group funding on NOI and NII, and also mainly on Philippines. Some of the technical cost savings came through under group funding, resulting in the lower cost Q-on-Q.
If you look at Touch 'n Go digital, that continues to be profitable, like Novan mentioned. If you look at the indicators on Touch 'n Go, the momentum continues to be positive. CIMB Bank Philippines as well, if you look at the deposit and number of customers, that also continues to be positive. Lastly, on Islamic, on Slide 25, some of the positives are going through on the Islamic side. The ECL volatility on a quarter-on-quarter basis driving the PBT performance. The NIM expansion on a year-on-year basis impacting positively for Islamic, with operating income growing nicely at 5.3%. Our Islamic first strategy continues. If you look at our growth, that 7% year-on-year growth continues to be strong. That's the end of the financials. Thank you, and I pass the presentation back to Novan.
Thank you, Khairul. How do we see the balance of 2025? Based on our ongoing discussions with our customers, in fact, at times like this, we're staying even closer to our customers. You would have seen corporate earnings in Malaysia and also in other markets also improving in the second quarter versus the first quarter. Still early days, we do expect business confidence to gradually improve with greater clarity around the U.S. tariffs. We are maintaining our 2025 guidance that we provided earlier, which is at the right-hand side of the slide. With regards to CIMB Group, we remain focused. We are hunkered down, we are all focused on the execution of Forward30. We are a work in progress.
The North Star of Forward30 is about creating sustainable returns in the long run. That will require us building a very sustainable machine that is always working, that is a work in progress, we are all extremely focused towards that. Having said that, we will always remain nimble to respond to evolving macroeconomic conditions. We've seen all the recent aggressive rate cuts in all the markets, we remain nimble to adjust our strategies, to adjust our funding mix in order to mitigate all this short-term impact. We will continue to invest in technology and digital to enhance our customer experience and support scalable growth. We are maintaining our deposit-led strategy and to proactively manage cost of funds to ensure NIM stability. As you've seen over the last one year, it's responsible growth. We are growing our assets on a constant currency basis.
We are growing our loans, we're making sure we're doing it responsibly. That has allowed us to maintain a strong asset quality in a market that is, like Indonesia, we have the strongest NPL. We maintain good levels of liquidity with an 88% LDR, which provides us the capacity to fund future growth. In terms of capital, we are well capitalized, which gives us the flexibility to optimize shareholder returns at the right time. With that, I will end here and take any questions that you may have.
Thank you, Novan and Khairul. Ladies and gentlemen, we will now begin the question and answer session. Just a reminder, if you would like to ask a question, please use the raise hand function, we will unmute your line accordingly.
Hi, Tushar here. Can you hear me? Should I start with the first question?
Hi, Tushar. Can you hear us?
Yes.
Yes. Sorry. We had some technical issue. Please proceed.
Sorry. Thank you, everyone, for your patience.
Thank you. Thank you, Novan and Khairul. Yes, it was quite clear that FX translation, especially Rupiah versus Ringgit, almost nine, 10% move in the last year. It is affecting reported numbers in Malaysian Ringgit terms. Indo is also quite accretive to the group in terms of ROE, NIM. Is there a risk that this sharp depreciation in the Rupiah poses some downside risk to your, let's say, ROE targets for the year? What sort of buffers do we have to offset this impact?
Thank you, Tushar. You are right. We have observed FX translation against us in this first half, as you would have seen in the numbers. We have remained nimble. Despite the challenges that we saw with regards to Indonesia and the Rupiah, Malaysia and Singapore, for example, performed very strongly. That is the benefit of us having this diversified portfolio across the group, where when some markets are down, we have some markets that perform better to basically mitigate those impact. Despite SGD also seeing some depreciation versus the MYR, because the Singapore business performance have been very strong due to the strong link-
Tushar, are you still there?
I'm still there.
So sorry about that. We're having technical issues here. Must be the rain. Sorry.
No worries. I lost you at, the Singapore business performance was better.
Hi, everyone. Sorry again. So sorry about that. Hope it's stable now. Sorry. Tushar, would you like to continue?
Yeah.
Sorry. I lost you.
I lost you at the Singapore business. You were mentioning that.
Okay. Right.
The Singapore business was better. Yeah.
Yes. What we've observed in the first half, Tushar, despite the challenges that we saw in Indonesia, it was mitigated by the strong performance in Malaysia and Singapore. Singapore also saw some currency depreciation, although not as much as the rupiah, but the business performance is good. From our perspective, what is most important is to ensure that the business engines in each country continue to run. While there will be FX impact up and down throughout the cycle, what's most important is the business engines continue to run. That's why, when we saw on a constant currency basis, net profit is still up 3.2%, we know at least that the business engine is still running.
Basically, just to summarize on the loan scope, because you have a constant currency target, but on ROE, so far, the visibility on 11.5% is still there because of other businesses.
Correct. It's still there due to the other markets.
Understood. Second, just on the wholesale banking piece, because, yeah, you're right on the tariffs and also because of bond markets, the yields have come down, so it looks more attractive there. Also because now the tariffs are finalized, you are hinting that second half might be better. Can we have the drag from wholesale banking in terms of assets growth, which is negative, can we have that reverse out in the second half of the year?
Yes. Based on our discussions with our clients to date, people are seeing a lot more certainty, which is what people like. It's, yes, although the tariffs announced will have impact on pricing as well as supply chains, but people just input that into their model. What's most important is there's certainty, to then move on and make the necessary CapEx commitments as well as investments. That is the one that's driving our business. But just to correct one point, Tushar, the loan growth is negative for wholesale, but not the asset side. Asset is actually growing, but it's the loan growth, which is mainly from Malaysia wholesale, that is leading to the negative. Based on the pipeline that we have at the moment, we are confident that we're able to reduce or to even reverse that.
Got it. Finally, just one last question on NOII opportunities. Some of the peers seem to be guiding to some good FVOCI reserves for the second half of the year, especially after the July OPR cut. Do you see an opportunity there also? Have you managed to sit on some unrealized or get some unrealized gains on the book, which can potentially buffer the NOII for the second half?
Hi, Tushar, again, sorry. Tushar, apologies. We lost you at NOII.
Yeah. Just some of the peers have been guiding to, especially after the OPR cut, there was a further increase in the unrealized gains, FVOCI reserves on the books. Have you also seen a similar trend for your own book? Have you managed to get some unrealized gains which can buffer NOII for the second half?
The short answer is yes. Similarly, as per the market, we recorded very good gains on the unrealized side due to our FVOCI book. We haven't crystallized much of it during the first half of the year. It does provide us that opportunity going forward. In terms of the timing of that crystallization, really, depends on the market opportunity, right? Sorry, Tushar. Just to complete my sentence. It depends on the market opportunity. We do have gains recorded in the first half of the year, quite significant, and it depends on the market opportunities going forward on whether we want to crystallize that or not.
Okay. Thank you. I'll jump back in the queue.
Sorry, everyone, for all the disruptions. We're trying to work that out in the background.
The next question, from Yong Hong. Yong Hong, are you still there? Sorry about this.
Hi, Novan. Hi, Khairul. Hi, Steven. Can you hear me?
Yep.
Yes, we can. Hi, Yong Hong.
Sorry, my background is a bit noisy. Maybe I'll ask both my questions together. The first on dividends. I think we have talked about flexibility on capital optimization for some time, but was that thinking applied to the interim dividends? Just one brief thought on declaring MYR 0.1975 instead of just keeping that slack. Is that a question of BNM signaling or management thinking? I just want to understand and get the angles. Secondly, on liability management, LDR outflow, LCR looks higher than peers. Anything you can do to improve our margins significantly, and especially, I think in Singapore, just obviously got the standout flow for 7% year-on-year. One of your peers is talking about alternative funding sources like covered paper, PC-
Sorry, Yong Hong, can you just repeat the second question, Yong Hong?
The second question is on liability management. Your LDR, LCR also looks higher than peers. Anything we can do to improve margins significantly? Do we see any cost savings with tapping on alternative funding sources like the covered paper with what your peers are talking about? These are two questions that I have.
Okay. Thank you, Yong Hong. The first point on dividends, our thinking of the 55.5% is to be consistent with what we have been paying out in the past, outside the special. We've gone with that thought process of 55.5% payout. That is number one, to be consistent. We will continue to monitor the situation and be nimble. At the end of the day, from our perspective, capital will be used according to, number one, we want to fund organic growth. Number two, there could be inorganic, but of course, organic growth is always our priority.
If there is excess capital as a result of us not being able to deploy that capital for growth, then we will look to optimizing that and returning it to shareholders. We're still in the first half of the year. There's still a second half. There are growth opportunities that we are seeing, we basically remain nimble and flexible.
In terms of our liquidity, Yong Hong, in terms of the potential positive mitigation going forward, given the backdrop of the policy rate cut that we got in Malaysia in July, SORA continues to be under pressure. There are some potential positives to mitigate that. Number one is that we continue to maintain, like what you highlighted, a good liquidity profile. That gives us that flexibility. We are seeing a good pipeline of growth coming through from wholesale banking, in the second half of the year for Malaysia. That provides that opportunity to deploy our good liquidity position. Number two, if you look at Singapore, our LDR is relatively still low.
There is some opportunity as well for us to be a bit more tactical in terms of our deposits so that we can deploy a bit more of our liquidity there. I think very broadly, not just these two countries, including Indonesia as well, I think as we build out our deposit franchise, including our CASA, our big focus is to really optimize the more expensive wholesale deposits, which we have managed to do in the second quarter in Malaysia, and also to a lesser extent in Indonesia on the repos. That's what we're going to continue doing, in the second half of the year to help mitigate some of that headwind on Malaysia and Singapore on our margins.
Thanks, Novan. Thanks, Khairul.
Thank you.
Thanks, Yong Hong. The next question comes from Jin Han from CLSA. Jin Han, are you there?
Hi, Novan. Hi, Khairul and Steven, as well as team. Thank you for the time. I have a few questions. First one would be, could you give us a little bit of insight into what is currently being done on the restructuring process of CIMB Thai's consumer banking side, and what are the current challenges that are actually keeping CIMB from winding down that particular segment, much like what you did with the commercial banking side of the business in the past? Second question would be on the current ROE that Singapore is actually doing right now up to first half, and where do you expect it to land going into the end of 2025? Third question would be on the current management overlay levels and what the split is between, let's say, retail and non-retail side of the businesses where you actually reallocate accordingly.
Thanks, Jin Han. Just to confirm, first one is a Thai restructuring. Second, was it ROE in Singapore?
Yeah.
Third is on management overlay split. Got it. I'll take the first one, first on Thai restructuring. That is progressing as planned. It's a detailed study of what needs to be done in Thailand as a whole. As I've mentioned previously, given our size, given the situation of the market, we need to be a lot more specialized in certain segments. We've done the changes to senior leadership, so there's a new CEO. New CEO has come up with a new updated management lineup.
We are actually right now executing the restructuring process. We have advisors appointed. Challenges, we are doing this very carefully. We do have quite a lot of capital deployed there. It's 12% of our capital. We want to make sure that anything that we do is done after very detailed and careful, and due consideration. Yeah, I don't see any challenges in terms of implementation, but more about us ensuring that we are executing this properly. That is on the Thai restructure.
On Singapore, we disclosed for the full year 2024, just to have that baseline. We disclosed the 2024 ROE for Singapore was about 20%, and that's driven by, of course, the margins being at 1.41%. Also we had a net write-back in 2024. For the first half, annualized ROE for Singapore is at 18%. Still, sustained at a relatively high level, despite some of that credit costs are normalizing somewhat, hasn't fully normalized, but it has normalized somewhat, which is driving the ROE coming off from the 20% to the first half of 18%. Still higher than any parts of the group. That's on Singapore.
In terms of the overlay, during the second quarter, about MYR 500 million, the debt reallocation due to the macro uncertainties, about two-thirds of that is into the retail segment, about one-third of that is into the non-retail segment. Just to be very clear on our definition of non-retail, the bulk of that non-retail is actually in the SME segment. Still, program lending, sort of, what do you call that overlay, are not related to any large corporates or large commercial names. It's more related to the SME segment.
Sure. Could I just follow up on the overlay? That MYR 500 million reallocation is out of MYR 1.2 billion total as per the previous quarter, or is this an additional on top?
It's a reallocation.
Right.
We have observation periods on overlay, it's not permanent. It is the end of the overlay. The real intention as what we have consistently provided to the market is that we want to minimize the overlay write-backs and maintain our 100% loan loss coverage. This is one of the emerging risks that we see, in terms of the justification of new forms of overlay, we managed to reallocate MYR 500 million this quarter.
Just to be clear, the total overlays that are on the balance sheet, or at least that are right now, is MYR 1.2 billion?
We don't specifically disclose that any longer. We used to disclose that under COVID. You have the accounting definition in the financial statement.
Okay, got it. Sorry, just wanted to follow up one last thing. In terms of CIMB Thai, is there anything from the regulatory point of view that might actually keep CIMB from winding down the consumer banking operations?
No, not at this point in time. There is nothing at this point in time that indicate any constraints from a regulator point of view. This is a dynamic environment that we will continue to monitor and to engage.
Okay, got it. Thank you so much.
Thanks, Jin Han.
Can we move on to Harsh? Harsh, are you on?
Yeah, hi. Thanks for this. The couple of questions. One is on Indonesia. You have been able to manage it quite well, but getting into next 6-12 months, there are two forces. One is, looks like there is some improvement in government spend, SRBI yield also coming down. Are you also seeing that improvement in cost of fund, but also broader, their degree of slowdown and other policy measures which are kind of leading to some degree of risk? Everyone is getting into better quality lending. What kind of competition you are seeing? Net-net, both of these things combined, is NIMs going up or down over the next six months? That's one.
Second, on asset quality, are there any parts of the portfolio, either in Thailand or Indonesia or even Malaysia for that matter, where, incrementally, you're getting more worried, because of tariffs, because of policy measures and so on and so forth. I'm just trying to understand the risk around the guidance on credit cost. Is it slightly higher or slightly lower? Thank you.
Thanks, Harsh. You are right to point out those trends in Indonesia, where I think a lot of focus now is on rates coming down, especially the SRBI rates, which would then free up a lot more liquidity into the system. We are also expecting and we are starting to see that also. That would lead to some improvement in cost of funds as well as a NIM outlook. I think asset quality in Indonesia is where we have done very well because of our more careful growth in the past. If you recall, I think a lot of the peers were growing double- digit over the last one year. We chose to be a lot more careful, and therefore, our NPLs are also a lot better compared to the peers.
Normally, asset quality issues come up, what, 18 months after a loan is dispersed during a very difficult market. I think in the next 6- 12 months is where we might see some of that coming through and those that would have grown very aggressively may be potentially more exposed. From our perspective, we are comfortable with our portfolio.
Just to break that down, right. If you look at some of the GIL by country, it has been either very stable or slightly improving. I think in the FS, you can see there could have been during the second quarter, some pockets or some segments where you saw some minor, very minor tick up in terms of GIL. What I would wanted to highlight, by the third quarter, some of those tick up that you might have calculated in the FS, have actually normalized back to the December sort of levels. I would describe that by country and by segment from a very broader perspective, so far, things have been stable or slightly improving by segment.
One follow-up on the Indo. Thanks for that on Indonesia comment. With the Patriot bonds being raised, do you see any of your large depositors kind of withdrawing money from the bank and kind of putting money elsewhere? Is there a pressure on some of your large depositors to redeploy elsewhere, including Patriot bonds?
It's a good question. Patriot Bonds at 2%, and yeah, that would impact certain segments of investors, we reckon. Our view is it's less of an impact to our organization probably versus other larger players.
Got it. Thank you.
Thanks, Harsh. Our next question is from Benjamin Tan from UBS.
Hi, Novan and Khairul. I just have one very quick question. Not sure whether I missed it. Can you share your NIM guidance? Just want to check whether there's any changes, and how are you thinking about NIMs going to second half of this year. Thank you.
If I may take that, in terms of our NIM, we are looking on a year-on-year basis, right? We ended 2024 at 2.21. On a year-on-year basis, we are looking at a compression of between 5 basis points- 8 basis points. I would sequentially, because of the OPR rate cut, because of the timing difference between repricing our asset and liabilities, we will get some negatives coming through in the next quarter, for Malaysia. Similarly, in Singapore as well, because of the SORA movement.
Third quarter sequentially for Malaysia and Singapore, it is likely to contract. I think as the deposit starts catching up, we'll get that positive NIM coming through in the latter part of the quarters. Similarly, like what we were discussing earlier, some of the mitigation actions that we are taking will likely offset some of that negative impact. Net-net, from an overall perspective at the group, we are looking at -5 to -8, year-on-year.
Got it. Thanks, Khairul.
Thanks. Thanks, Ben.
Just a quick reminder, if you have any more questions, please do use the Raise Hand button. I think we have exhausted all the questions at this point in time, Novan. I think we can pass it back to you to say your thank yous.
Thank you very much to all for attending our call today. I would like to apologize for the technical issues that we faced a number of time or the technical interruptions. Thank you for staying through the call. Thank you for your questions. Thank you for your time. For those in Malaysia, I wish you Selamat Hari Merdeka, and have a good, long weekend. Thank you very much.
Ladies and gentlemen, that concludes our briefing for today. Once again, thank you for joining us. I wish you a good evening and a good long weekend ahead. Thank you.