Good afternoon, ladies and gentlemen. Welcome to CIMB Group's financial results briefing for the first quarter of 2025. Our host today is CIMB Group Chief Executive Officer, Novan Amirudin, and Group Chief Financial and Strategy Officer, Khairul Rifa'i. My name is Steven from the CIMB Investor relations team. You should have received the analyst presentation and financial statements via email from the Investor Relations email. Otherwise, you may find the documents in the IR section on our website at cimb.com. Before we begin, please be informed that this briefing is being recorded.
I would like to encourage everyone to include your name and company on the Teams app to allow us to identify you. Note that all participants' lines are currently on mute, and you will have the opportunity to ask questions after the presentation by using the raise hand option. At this juncture, I would like to hand over the briefing to Novan and Khairul. Novan, over to you.
Thank you very much, Steven. Good afternoon, everyone. First quarter 2025 financial performance for us, has been resilient. We achieved an 11.4% return on equity. I will now go through some of the key features behind our results. Firstly, net profit grew 9.6% quarter-on-quarter and 1.9% year-on-year to about MYR 2 billion. In constant currency terms, we saw assets, loans and deposits grew 5%, 4.4%, and 2.7% year-on-year respectively. Our deposit net strategy, which we have been actively executing over the last 18 months or so, continue to yield results. Our NIMs held steady at about 2.16%, despite the rate cuts that we have seen in Thailand, Indonesia, and Singapore. Our deposit net strategy basically resulted in a reduction of cost of funds of about 4 basis points, quarter-on-quarter.
Our non-interest income increased 11% quarter-on-quarter. This is driven by very strong client franchise business. Fees and commissions are coming from wealth business in Singapore, Banca business in Singapore, as well as Indonesia cut fees. That increased about 12.6% quarter-on-quarter. Treasury client sales income, which means the income that we generate from our clients on the treasury side, increased about 18.9% quarter-on-quarter. If I look on a year-on-year basis, non-interest income declined. This was mainly reflected by non-client franchise business. In the first quarter of 2025, we had lower NPL sales compared to the first quarter of 2024, and we also had a lower prop trading income in the first quarter of 2025 versus the first quarter of 2024.
I'm less concerned about this because client franchise income is actually up. We will go more into the details on this later. Cost to income ratio remains relatively steady at 46.9%, which reflects our continued cost discipline. This is not at the expense of our investments in technology and resilience, which I stress many times, is extremely important to our business. Our year-on-year tech spend increased about 5%, and this is still within our 8% TCIR, which I've also mentioned, in our previous discussions, is going to be our tech budget every year, so about 8%-9% TCIR. This 46.9% CIR is as a result of our costs increasing 1.1% year-on-year. On a quarter-on-quarter basis, our OpEx declined 1.7%. Our asset quality remains very strong, given the responsible growth that we have been practicing over the last 12 months.
Credit cost is at 26 basis points with an allowance coverage ratio of about 102.4%. This is after we added in some forward-looking overlay of about MYR 100 million in the first quarter of 2025. Our CET1 ratio remains strong at 14.7%. No discussion is complete without discussing the impact of Liberation Day on our business. Our group is well positioned to navigate the current market uncertainties. This I can divide into two parts of the discussion. Our proportion of loans, which are higher at risk as a result of the geopolitics at Liberation Day, is extremely low. Our exposure to trade-related exposure in general is less than 3% of our loan book. Our customers who rely significantly on the United States, and we define significant as having revenue of 20% or more from the U.S., is less than 0.4% of our book.
When we want to analyze potential second-order effects on other customer segments, a lot has been discussed about how commercial segment or SME segment could be impacted second order as a result of Liberation Day. This is actually the lowest part of our book. It's sub 17% of our total book. As a result of Liberation Day, as well as potential softening of GDP as a result of that, we do expect rate cuts to happen across. We've already started seeing rate cuts in some of our key markets. Therefore what is most important is to ensure that we continue to optimize our source of funding to reduce our cost of funds.
If you look at the chart on the right, this is something that we have been proactively executing over the last few years, where our CASA ratio has increased by about 5% alongside reliance on alternative funding. At the same time, we've reduced our reliance on short-term money market deposits, as well as fixed deposits. I just want to recap a bit about our Forward30 plan, which we unveiled to the investment community a couple of months ago. This is the six-year strategic plan running into 2030. To mobilize 30,000 people to move in the same direction, we decided to anchor our plan on our purpose. Our purpose is to advance customers and societies. We've devised it according to four strategic goals, and I would like to call these the four Cs: capital, cash, cross-sell, and capabilities.
Following this page, I will provide you an update in terms of where we are on the execution of each of these goals. It looks very simple on paper, behind each of the four Cs, there are many programs that have been devised and is currently being executed to get us to where we want to be. This plan is a plan that has been designed to inspire 30,000 people, up to all the branch levels, to execute according to the plan. How have we been faring on the four Cs with regards to the Forward30 plan? It's still very early days, we have started to execute very quickly. The first C on capital, I've mentioned a lot about the reallocation of capital from low ROE countries into higher ROE businesses.
One area that clearly needs some work on is Thailand, where our return on equity in the past has been in the region of about 5%-6%. It is a tough market. The market continues to be challenging. We've made a leadership change there. We've made two leadership changes, one in Thailand and one in Cambodia, to sharpen strategic direction. We consolidated Singapore, Thailand, and Cambodia under a new segment, what we call Growth Markets, to sharpen strategic focus and drive growth in priority segments. Rather than being large universal players in each of these markets, we're going to really focus on our strengths and where we can win. We've put Growth Markets to be led by Victor Lee, who was previously the Chief Executive Officer of Singapore.
Victor has a proven track record of transformation from his previous experience in a regional bank, in Fullerton, as well as in transforming our Singapore business itself. With regards to ensuring that we optimize capital even further, we've also optimized capital at our relevant subsidiaries. CIMB Niaga, for example, announced a 60% dividend payout for 2024. This is compared to the 50% payout in 2023. CIMB Thai announced a 40% payout for 2024 versus nil in 2023. This is an area that we're going to continue to optimize and be proactive about as we look to optimize capital across the group. With regards to our second C, which is all about cash. The purpose of cash really is to reduce our cost of funds. We have been proactively executing this over the last 18 months. You've heard me discuss this many times.
As a result, we've seen in this first quarter, our cost of funds declining by 11 basis points year-over-year and four basis points quarter-over-quarter. As a result, despite the interest rate cuts that we have observed throughout 2024, and even in the first quarter of this year in Thailand, Indonesia, and Singapore, we have managed to defend our NIM despite the high levels of rate cuts. Moving on to the next C, which is all about cross-sell. Cross-sell is about earning income other than loans as well, and the reason why this is important, as you know, is it uses a lot less capital and therefore a lot more ROE accretive. This is something that we've been championing also over the last 12 months, it is a key feature of Forward30.
Fee and commission income is up 6.9% year-on-year at 12.6% quarter-on-quarter. Treasury client sales, which is now a specific line item that we have started tracking since last year, is up 5% year-on-year at 18.9% quarter-on-quarter. Our wealth business has seen AUM increase 12% year-on-year at 5.5% quarter-on-quarter. Despite the NOII seeing a decline year-on-year, when we compare first quarter 2025 to first quarter 2024, as I explained earlier, what we are encouraged by is we are seeing increase in our client franchise income. Although we do take note that the reason for the first quarter 2025 weaker NOII is as a result of non-client business, which is basically the loan sale and the prop trading side.
Our fourth C on capabilities, this is all about improving our capabilities and our productivities to make businesses simpler, better, and faster within CIMB Group. We continue to be extremely vigilant with costs. I mentioned earlier that costs year-on-year increased 1% which allowed us to defend a cost-to-income ratio about 46.9% in the first quarter of 2025. As always, this is not at the expense of tech and resiliency, which is extremely important to us, which is up 5% year-on-year, which is within our 8% TCIR target. With that, I am now going to hand it over to Khairul, to go through the other details of our financial performance. Over to you, Khairul.
Thank you, Novan, and good afternoon, everyone. Some of the key highlights on the numbers are on slide nine, but I will move on straight to slide 10, just to briefly highlight in terms of the key performances. Firstly, if you look at the growth on the quarterly income, that was pretty robust, 3.22% on a quarter-on-quarter basis, driven like what Novan said by NOI on an underlying basis, that is on the fee and trading side. It is also a reflection of the fact that our diversified business in terms of geographies has driven that strong quarterly income performance by Malaysia and also Singapore. However, on a year-on-year basis, our income did contract, but that is also contributed by the FX translation impact.
If you exclude the FX translation impact, you can see on the middle part where our income grew moderately well at 1.5% year-on-year, and that translates to a PBT year-on-year growth, excluding the FX translation impact of 6%, year-on-year. That is obviously higher than the reported number that we are showing on the PBT line, which has the FX translation impact of 2.1% year-on-year growth. Like what Novan mentioned, in terms of our discipline and focus on the liability management side has resulted in our NIMs being fairly stable on a quarter-on-quarter basis. What I want to highlight here, if you look at the numbers within that, in Malaysia, we did expand margins by two basis points quarter-on-quarter and five basis points year-on-year, driving that NIM stability at the group level.
Next slide, on slide 11, briefly in terms of highlights on our segmental PBT. Consumer banking and wholesale banking did very well on a year-on-year and quarter-on-quarter basis. Consumer banking strong performance, driven by two things. One is a good top-line growth of 4%, driven by the card fees and also bank cards. On a year-on-year basis, it's driven by this good underlying asset quality, where during the first quarter this year, we had a lower ECL, driven by some of the timing on reallocation of the overlays and some model-related write-backs. On wholesale banking, a reflection quarter-on-quarter performance, a reflection of the good trading and FX performance, both on the sales and also our prop, where it drove the top-line growth of 8%, which resulted in that strong bottom line performance.
On a year-on-year basis, we did have a good write-back coming through from Niaga in the first quarter of this year. Commercial banking, down both quarter-on-quarter and year on year, but this is driven by the absence of a significant write-back coming through in last quarter, fourth quarter 2024, and also first quarter 2024. The absence of that, the comparatives looks lower on a year-on-year and quarter-on-quarter basis. CDA and group funding. On the CDA side, good top-line growth performance, both quarter-on-quarter and year on year. However, as a segment, the performance on the PBT level on a quarter-on-quarter basis was impacted by the timing of some of the expense approvals that we did under group funding centrally. Next slide on the performance by country. Malaysia and Singapore broadly has a relatively good quarterly performance.
quarter-on-quarter, Malaysia is really driven by NOI, growing by 10% quarter-on-quarter. What I highlighted earlier as well in terms of the NIM expansion quarter-on-quarter by two basis points, that helped that PBT better performance. Singapore, good performance across all the PNL lines. Our top-line, very robust growth at 11% quarter-on-quarter, and coupled with a good write-back coming through during the quarter. Going back to Malaysia, in terms of the year-on-year performance, relatively flat-ish, and that's a result of a stronger prop performance under NOI last year. In Singapore, very good and strong performance on a year-on-year basis, mainly driven by our NOI across fees and also trading and FX. Indonesia, a recovery coming through in the first quarter, driven by two things.
One, NIM expanded by 11 basis points, but also we had that significant write-back on the corporate NIM coming through in the first quarter. On a year-on-year basis, it's really a reflection of the challenge in terms of the environment, where as a result, Indonesia Niaga margins did contract quite significantly, and we also had that lumpy NPL sale in the first quarter of 2024. Thailand, broadly in terms of the current quarter performance, there is a normalization of the ECL. We did have a write-back coming through in the fourth quarter of 2024. On a year-on-year basis, very strong NOI performance Slide 13, going through the breakdown of the PNL on NII. On an underlying basis, that moderate growth or stable growth quarter-on-quarter is good given the backdrop of falling rates and also some very competitive environment in some of our key markets.
If I just give you some color in terms of the variance of the NIM movements by country. Within Malaysia, the improvement is really driven by the positive trajectory on our cost of funding, and there is two components to that. One, in terms of our retail customer rates from on a portfolio basis, that has come down slightly. But the good growth in terms of volumes on FD and CASA has enabled us, linking back to what Novan mentioned earlier, has enabled us to reduce our dependency on the expensive STMMD. So those two components drove that improvement in terms of margins in Malaysia. In Indonesia, the improvement is mainly coming from the yield side, as you have seen during the Niaga results. The 11 basis points is really a recovery of some of the yields on the corporate and also consumer segment.
In Thailand, it is more of a catch-up in terms of recouping some of the repricing of our deposits lower, given the policy cuts in the fourth quarter. Singapore really is driven by the movements on SORA, so we were impacted by the timing difference of the repricing of our yields coming off. Going forward, we should get some of that back as we reprice our deposits lower as well. But there is some loss in margins in Singapore. So the year-on-year basis, Malaysia is supporting the margins during our quarter on a year-on-year basis with that expansion.
However, this is offset by Indonesia, Singapore, and Thailand, broadly due to the competitive pressure in some of these markets, but also given some of the policy rate movements that we saw in the fourth quarter in some markets in the first quarter of this year. Moving on to NOI on slide 14.
We had that robust growth of 11%. Just to give a bit of color on that 4.4% within that, fee income was strong at 13% growth quarter-on-quarter, driven mostly by consumer on Malaysia cards and also Singapore bank cards. If you look at that 17%, it is really driven by the sales, the client franchise component. However, the trading prop side also recorded very good growth on a quarter-on-quarter basis, growing by 15%. Both of these, of course, the tailwind is on the back of very volatile markets during the first quarter of this year, which gave us some good opportunity in terms of spreads and also volumes during the first quarter of 2025. On a year-on-year basis, a bit contract by 8.5%. Again, some color into that 10.6%.
That fall is really driven by the NPL sale that we recorded in the first quarter of 2024, amounting to about MYR 120 million last quarter. The absence of that, driving that fall. Because if you look at fee income, our growth remains pretty good at 7%, driven by mostly Singapore on the segment of wholesale and also consumer on bank cards. On the trading side, it is really, compared to last year, was impacted on the more on the prop side, which remains quite volatile. But if you look at the client franchise business, that continues to grow well at 5% year-on-year. OpEx on slide 15. Good cost control, like what Novan mentioned, it has come off by 1.7% quarter-on-quarter. Personnel costs did pick up, but on an underlying basis, that was relatively stable.
The reported number was up because we took some bonus write-backs in the fourth quarter of last year. The other line items under OpEx, the reduction in OpEx is more of a normalization, because there were some seasonal accruals and ramp up during the fourth quarter of last year under those four underlines. On a year-on-year basis, fairly stable at 1.1%. The main driver is personnel cost. That's really a reflection of the headcounts increase and inflation and improvements in Malaysia, mainly Malaysia and Singapore. Technology as a reflection of our investments. Marketing on a percentage basis looks high in terms of growth, but this is mostly a variable cost related to the revenues that we generate in Philippines.
On asset quality, the backdrop remains very good, and you can see that coming through in terms of the numbers where it is slightly lower or fairly low at MYR 311 million. Write-backs on recovery continues to be at a relatively high number of that MYR 300 million, and this is driven by Niaga and also Singapore. Given some of that write-backs coming through, we took the advantage of being a bit more conservative in terms of our forward-looking provisions on overlays. We did some MYR 100 million worth of new overlays related to uncertainty on the macro backdrop, on the back of the trade war or trade uncertainty. That is also to offset some of the write-backs that we experienced on the consumer side. You can see consumer on retail that has come off on a quarter-on-quarter basis.
That's driven by the new model deployment, which is a reflection of the underlying asset quality, which resulted in some write-back and also some write-backs on the overlays, which we have reallocated it into this new form of overlay. Overall, our credit cost has remained fairly stable, slightly improving to 26 basis points, and our coverage is very comfortable at 102%. Our impaired loans as well is stable. In fourth quarter, it was 2.12%. In fourth quarter, it was 2.16%. It's fairly stable at that level. Loans, we were impacted by FX and also in terms of the growth, it is a reflection of our strategy to be very disciplined in terms of our pricing. On a constant currency basis, year-on-year, we grew at 4.4%.
During the quarter, the growth is fairly moderate, mainly because of that approach, especially on the corporate banking Malaysia side and also Thailand. That resulted in the quarter-on-quarter reduction on wholesale banking. On the underlying consumer and commercial, that continues to be strong. Commercial banking, Malaysia driving that growth. Consumer banking, driven by mostly Singapore and also Indonesia. On a year-on-year basis, the reflection of that negative growth is coming through from wholesale banking, mainly Malaysia. Consumer banking and commercial banking on a year-on-year basis, mostly driven by Malaysia. Breaking it down by country, you can see on the headline, Malaysia looks fairly moderate at 2.4%. However, if you look at consumer Malaysia, that's growing broadly in line with industry of 4.4%. Commercial growing very well at 7.5%. This is offset by a weaker corporate.
Within Indonesia, you see the driver of that is mainly corporate and also the auto segment. Singapore, both corporate and commercial, are driving a very strong growth of 12.6%, whereas in Thailand, corporate is driving that negative growth. Consumer is slowly picking up in Thailand. Slide 18 on deposits. Here, I would like to focus on the CASA momentum. On slide 18, you can see CASA growth remains good in terms of the momentum. You can see on a year-on-year basis, CASA grew at 7.4%, driven almost by all segments. Similarly, on a quarter-on-quarter basis. On a reported number, you can see wholesale banking coming off, but that's not due to CASA or the main underlying deposit. That's really the optimization of the activity, resulting in that headline number coming off.
On an underlying CASA and FD, wholesale banking recorded very good growth on a quarter-on-quarter basis. A reflection of that, you can see the CASA ratio across all our markets on a quarter-on-quarter basis improved. Overall, at the group level, we improved by 70 basis points. Slide 19 on capital and liquidity, that remains very good and strong. Our capital levels are now at 14.7%. Our ratios in terms of LCR are very comfortable above the regulatory requirement. Slide 20, moving on to the performance by segment. Firstly, on consumer. You can see what I was explaining earlier in terms of the breakdown. The really good growth on PBT under operating income is really driven by NOI or fees specifically, growing by 28% quarter-on-quarter.
Provisions are coming in lower because of the model deployment, which resulted in a bit of a write-back. On a year-on-year basis, the strong performance is really driven by provisioning, lower ECL, because of the timing of some of the reallocation. Within consumer, like I mentioned, growth was good in Malaysia in terms of the balance sheet. CASA also very good on consumer, driven by Singapore and also Thailand. Slide 21, commercial banking. The weakness here is mainly on the absence of the write-back in the fourth quarter, and also we had a write-back first quarter 2024. On the operating income side as well, it did show a moderation on a year-on-year and quarter-on-quarter basis, mainly because of NOI and also some margin compression on a year-on-year basis on the funding side. Slide 22.
Very robust top line performance quarter-on-quarter, driven by mostly on NOI. We also experienced that write-back during the current quarter, from Niaga, driving that lower ECL, both on a quarter-on-quarter and on a year-on-year basis. Slide 23, on CBA and group funding. Here you can see the OpEx I was referring to, and mostly this higher OpEx on a quarter-on-quarter basis impacting our PBT. quarter-on-quarter is driven by group funding, and this is more on the Central related OpEx, where we take some accruals coming through. Similarly, on a year-on-year basis, that has impacted the PBT performance, which resulted in a moderate growth.
If you look at CBA on an underlying basis on the indicators, that has continued its good positive trajectory with Philippines still continuing to grow very well in terms of number of customers and also in terms of the deposits. TNGD, we recorded our first breakeven in fourth quarter 2024. That continued during this quarter, and that's driven by, if you look at the indicators, still continuing with the good pace of trajectory for such growth in film. Lastly, on Islamic on slide 24. Some of the weakness is mainly because of the ECL, more to do with timing.
If you look at the underlying operating income growth is robust, both on a quarter-over-quarter and year-over-year basis, and this is a reflection of the good traction in terms of the asset growth or financing in particular, and also some margin expansion coming through both quarter-over-quarter and year-over-year. With that, I've ended my session. Thank you, and I pass the presentation back to Novan.
Thank you, Khairul. To summarize our outlook for the rest of the year, given the current uncertain times, we continue to be a trusted partner to our customers. We're focused on delivering value, and we continue to stay extremely close to our clients. Discipline execution is key as we navigate through this evolving macro environment. We're all very focused, all hands on deck, on the Forward30 execution to achieve our purpose mobilized by the four Cs that I mentioned earlier. I think with that, we are confident that we can achieve our short-term and long-term targets, given the strength and resilience of our franchise. We'll continue to leverage on our current proactiveness with regards to asset liability management to navigate the current rate cuts, keep cost of funds low, which would preserve stability.
We have a very strong asset quality as you would have seen at the moment. We have healthy liquidity levels, and our LDR of 88.9% allows us to have balance sheet stability and also capacity to fund future growth. As a result of the encouraging resiliency that we're seeing in our current portfolio, we're seeing better-than-expected recoveries in the first quarter and our continued focus on responsible growth. We are updating our credit cost guidance for the year. If you recall, at the start of the year, we gave a guidance of about 30 basis points- 40 basis points. As a result of the strength of the current portfolio that we're seeing and our strategy, we are updating our credit cost guidance to 25 basis points- 35 basis points.
We will continue to be proactive with capital optimization, maintaining a CET1 of above 14%, which we feel is sufficient and adequate given the current uncertainties. In the medium term, we do see a lot of opportunities for CIMB Group. The current new world order as a shift into a multipolar world, in our view, will increase intra-regional trade, which would benefit an integrated ASEAN franchise like ourselves. With that, thank you very much, and we'll now go into question-and-answer.
Thank you, Nova n and Khairul. We will now begin the question-and-answer session. If you would like to ask a question, please use the raise hand function, and we will subsequently unmute you accordingly. We have our first question from Nick Lord from Morgan Stanley. Nick, can you hear us?
I can. Can you hear me?
Yep, good.
Yeah, come. Okay, thank you. Congratulations on a good set of Q1 numbers. It looks very solid. Just a couple of quick questions from me. First, just in terms of your guidance, as you say, it all looks pretty much the same with the exception of the credit cost guidance. I did notice that you'd taken out the comment on dividend payout. I just want to clarify if that was an omission that's not deliberate rather than any change on dividend payout. Secondly, I just wondered if you could comment a little bit more on sort of the credit quality point.
I know you highlighted that you didn't think there was much impact from the tariff changes, and you gave that data there, could you just maybe describe to us what you are looking at the moment and what sort of factors you'd think about in terms of managing that overlay going forward, either increasing it or decreasing it? As you get real world data in, basically.
Got it. No, thank you very much, Nick. Yes, thanks for highlighting that. Our dividend strategy remains the same, we are underpinned by our dividend policy, which is a payout of about 40%-60%. You've seen in the past how we've been extremely proactive when it comes to this. We've maintained 55% payout ratio. Whenever there is excess capital, we would pay out special dividends. We will continue to be proactive to the extent that there is excess capital, we will always look at returning that to shareholders. No change to the dividend payout policy. As I've mentioned, we continue to be proactive when it comes to capital management. Second question on credit costs.
Yeah.
I don't know whether you want to take that first?
Yeah, that's right. In terms of the, we continue to review, both in terms of MEF and overlays. I think this is our first step in terms of trying to anticipate what could be the forward-looking risks that are emerging. That first step, as what you saw during the first quarter, is taking some of that overlay. To be very specific, where we see that emerging risk that could potentially play out is more on the non-retail side. The overlays are more related to the SME segment and some segments or some portfolio. On a portfolio basis, it's not name by name, but it's on a portfolio basis on the corporate segment. I think we will continue to look at this during the second quarter.
As we see some of the risks that we previously put on overlays coming off, now obviously with this trade war, there are new emerging risks that are coming through. Net, if you look at our, despite, you know, the thinking of putting more overlays. We have upgraded our credit cost guidance to 25 to 35 basis points. It's always our intention to maintain a very comfortable and sufficient level of coverage. We are looking at adding on overlays. It is underpinned by our credit cost guidance. It's also underpinned by the fact that our coverage, we want to maintain at a sufficiently stable sort of level as what it is today.
Yeah, I also just want to add on, as we showed on page four, we're not a trade bank. Less than 3% of our book today is basically trade-related exposure. In fact, coming from customers with a material reliance on the United States is less than 0.4%. To Khairul's point, if you want to think about the various customer segments that would be impacted from this situation, we know corporate clients have the strength to basically withstand the current situation. Consumers, in Malaysia so far, across regions, subject to employment rates and wages, domestic demand therefore remains strong. Commercial segment is where the area where we've taken an additional overlays to basically buffer the book. It's less than 17% of our book today. We've always been a largely consumer and wholesale player rather than a commercial segment player.
Cool. Is it fair to say it's split evenly across how your book is split, or is there a disproportionate in, say, Thailand or Indonesia?
No, it's actually maybe even less in Thailand. In Thailand, we've exited commercial. If you recall, Forward23+, we've exited commercial, we don't have commercial SME in Thailand. Indonesia and Singapore, we actually scaled it down. It's actually at a much lower level.
Lower level.
versus Malaysia. Because from Forward23+, where we reshaped our portfolio, we actually scaled down our exposures, and we fixed the credit underwriting. We changed the way we look at risk. We've done a lot of transformation on that side on the Indonesia and Singapore parts.
Thank you very much. Thank you for your time.
Thank you, Nick.
Thanks, Nick. Our next question comes from Zhixuan from Schonfeld.
Hey, am I audible?
Yes. Hi, Zhixuan.
Thank you so much for the opportunity. Just on the credit cost guidance, I'm just a little surprised because I think you guys are one of the only banks maybe that upgraded the credit cost guidance, after the trade war. I was just wondering, is it something changed between the last earnings and these earnings, that prompt you to do that, in terms of underlying asset quality, or is it like we have very high confidence that even in a potential slowdown, economic slowdown scenario, we can keep to that 25 basis points- 35 basis points?
Novan.
Thanks a lot, Zhixuan. It's really data-driven. We are very happy to see how the current book is performing. The recoveries that we saw in the first quarter of this year is a lot stronger than what we expected. As a result of the benefits that we're seeing, we've updated our credit cost guidance. It's not due to any change of strategy. Our strategy still remain very same. If you recall, we've always been very focused on responsible growth. That responsible growth continue, the focus on asset quality continues, but we're now seeing a much stronger, healthier book in the first quarter. As a result of that, we are updating our credit cost guidance.
To add, in terms of the numbers, because it's in terms of the recoveries, you saw that coming through in our Niaga numbers, right? In also, in terms of magnitude, you can see under wholesale banking as well, because mostly on the corporate side, Niaga recovery came through quite big. Similarly, in Singapore as well. We had some recovery on Singapore write-backs coming through from Singapore related to on a portfolio basis on the corporate side. The first quarter was also a very good recovery number.
Got it. That's very helpful. Thank you. Under what kind of macro scenario, It will be helpful if you can quantify, let's say, what kind of global or Malaysia GDP growth or what kind of average tariff level that we might end up with that may derail this credit cost guidance this year?
We update our MEF forecast related to ECL, right? Specifically, we're going to go very technical on that, but related to ECL, the MEF that we use is 16 variables, and one of them is, of course, GDP. GDP is a big growth driver. We do update our MEF twice a year. Once in the first half, the second one in December. Based on our outlook and MEF, we reflect it as per what is the most current forecast, and it's pretty much what consensus is thinking about in terms of the outlook, which is impacted by the uncertainty on the trade side, right? Based on that, because our MEF level has always been sustained at a high level, we've never released a lot of the MEF. The impact coming through from the downward revision of the macro outlook is not significant.
Got it. Thank you. Just one more from me on the margins. How should we think about margin for the rest of the year? Do we think we can at least keep it here, or you see a little bit of risk of further trending down a little bit?
On margins, specifically in terms of our number, we are maintaining our guidance, right? That is a bit more tilted to the lower end, right? We guided the market on stable to -5 basis points at the group level. It's more tilted towards the lower end of that guidance given how policy expectations have changed quite significantly from the last time we spoke. Within that, Malaysia similarly is still 0 basis points to -5 basis points. Within that, of course, with rate expectation now, we're expecting one rate cut happening in Malaysia. There will be a negative impact coming through from that. The SRR relaxation was a surprise, and that will have some partial offset to that negative impact coming through from rates. Niaga, I think maybe you've already heard that from Ibu Lani.
Singapore, also, there is a slight revision to slightly a bit lower in terms of margin compression. We are expecting around a 10 basis points year-on-year margin compression coming from the rate expectations on SORA. Thailand should still be fairly similar to our previous guidance, which is about -10 basis points, even though the rate expectations have changed, because in Thailand, rate movements will be slightly, depending on how we manage the liability profile, there is some possibility we may be able to recoup some of the negative impact coming through from the policy rate movements in Thailand. That is on the back of policy rates. Of course, another layer to that is on the competitive environment dynamics of that.
Zhixuan , I would add, yes, rates will basically change as a result of where GDP and inflation rates would be in each of the markets. This is where we need to continue to be nimble and proactive, right? Our second key on cash, continue to ensure that we optimize our funding mix so that we can reduce our cost of funds. That is critical. We currently have room, from a liquidity perspective, our LDR of 88%, that gives us also a lot more room in terms of how we want to optimize. This is a time where we need to be very nimble, in terms of our asset liability management. It's not just sitting back and seeing how rates will basically move because, that essentially is beyond our control because that's subject to GDP and inflation rates.
The ones that are within our control, which is basically funding mix, and when we do have room via our LDR, I think that is crucial.
I think that's a very critical point. Linked to that, because we have room, maybe you have seen already in our campaign rates in Malaysia, we cut our campaign rates by 10 basis points- 20 basis points in our latest campaign, which we launched in the middle of May. We are leading the market on that. That should offset some of that negative impact from any rate cuts that we get within Malaysia. Because we have that funding flexibility, that's why we can be proactive in terms of managing our liability pricing and lead the market on that.
Got it. Thank you so much.
Thanks, Zhixuan. Our next question comes from Akash from UBS. Akash, you there?
Yes. Hi, can you hear me? Hello?
Yep.
Yep. Okay, great. Thanks for taking my question. Just two simple questions. First one, you've lowered the credit cost guidance, there's no change to the ROE expectation for this year. I'm just wondering, in terms of your thinking, what are the line items of change that are offsetting this potentially positive impact from the lower credit cost?
Yeah. I alluded to it, Akash, if I can answer that question just very quickly. I alluded to it that the margin guidance is tilted slightly to the lower end.
It's primarily margins then, right, basically, yeah?
Yeah, exactly. Because of the change of view on policy rates across the board.
Understood. The second one is on the capital slide that you had in the presentation. I think you talked about the leadership change, and you recreated the payout numbers. What are the milestones that you're looking at in terms of delivering any improvement in capital strategy?
First step that we did is basically leadership change to basically drive a new plan, for the country, and also a more focused group within what we call the Growth Markets. That is underway. The team is analyzing the market, analyzing what the peers are doing, analyzing options. It's something that we are very focused on. I can't give you a specific date in terms of when will we unveil a new plan for Thailand. Rest assured that this is something that is urgent and we are working extremely hard on it. The next point with regards to dividends, for me, this is all about being a lot more optimal in terms of our capital. We have various legal entities, we have capital in various legal entities.
In order for us to optimize our overall capital base, we need to be able to extract excess capital from the legal entities. This is something that is going to be ongoing. It's not a one-off thing.
This is just to report the progress that we have made in the first few months of this year. This is going to be an ongoing discussion in terms of how we optimize capital across the group. When I mean discussion, us and the regulators.
Yes. Thanks, Novan. Your current CET1 is 14.7%, and you're setting a target of greater than 14%. This 70 basis point gap, is it something that can be addressed this year itself, or is it more of a two-year, three-year sort of target?
That provides us that flexibility and that assessment, right? Akash. We can tweak around the edges, it's more of giving us that flexibility and giving us the bullets to get a discussion going with regulators.
Okay, understood. That's all.
The key point, Akash, is we don't want to hold on to excess capital. At the end of the day, capital that gets retained is to grow the business, and that is based on the business plan subject to the current market conditions. To the extent that we have excess capital not needed to grow the business, then that's when we proactively look at returning to shareholders. We need to look at it dynamically.
Understood. That's very clear. Thank you. If I can ask one more question. On the Malaysian NIMS, you did talk about how deposit cost optimization helps you improve the NIMS quarter-on-quarter, a little bit, but what happened on the asset yield side? Some of your peers have seen increasing competition, and they saw some pressure because of that. How did you manage to avoid that?
Two parts, right? One is that we managed to This is back to Novan's point on our strategy in terms of having that flexibility because we are flush with liquidity, where we've managed to optimize our expensive wholesale funding. Volumes came off on that, and because we had that flexibility, we managed to optimize also the rates on the wholesale funding side. That's one component. It did come off on the portfolio in terms of rates, not volume, but rates did come off. That's just a reflection of what we've been doing since 2024, right? We benefited from those two parts during the first quarter of this year compared to quarter of last year. Going forward, and that's why there's that flexibility, we're trying to drive that even further.
It's unlikely that you're going to see that benefit during the second quarter because we only launched that new campaign. New campaign is only on the new booking. We still have a big current base that's still running in terms of the current rates. Hopefully that will then offset some of the negative impact on any policy rate movements.
What about the asset yields, Khairul? Did you see a lot of competition?
Asset yields have been fairly stable, it has followed the same sort of trajectory. We haven't managed to really optimize asset yields further. It is still very competitive, we had to maintain very low asset prices to continue growing.
Understood. Just, if I were to ask you to compare the two months of this quarter versus last quarter from a funding competition perspective, do you think it remains stable or become more intense or less so?
I would describe it as stable. Of course, you have banks which offer very high campaign rates. You have them coming in and out, right? You still have that, right? It's a different name today, this few months. It's been stable. I wouldn't say it's been more intense or has been coming off as just stable.
Okay. Thank you very much.
I just want to explain stable, but that stable is still at an intense rate. Yeah. Akash, your question about on the asset side, that's why we are very disciplined in terms of our asset growth. While the consumer and commercial engines continue to operate and run, where consumer is in line with GDP growth, commercial is a slight multiplier to that. On the wholesale side, we're lucky, we're being extremely disciplined with our asset growth. We're not going to go do a loss-making loan, for example, just for the sake of booking a loan growth. That's why we are basically nimble in terms of how we manage the deposits that we have. Where do we deploy the deposits between loans as well as bonds? The point is, we are being very disciplined with how we grow our loan book.
Okay, understood. Very clear. Thank you very much.
Thanks, Akash. Our next question comes from Jin Han Chin from CLSA. Jin Han Chin, you're on.
Hi, Novan. Hi, Khairul, as well as the CIMB team. Thank you for the time. I just have a couple of questions. One would be, again, coming back to credit cost in the 25 basis points-35 basis points. Noted that CIMB Niaga is still guiding for 100 basis points and Thailand doesn't seem to have any combine it. Could we get a bit of an update in terms of your guidance for credit costs, let's say, in Malaysia and Singapore? I think previously it was 15 basis points-20 basis points last spoke, and Singapore was kind of a return to a normal credit cost line from the right back. Is this a bit of update in terms of where we are going to stand there? My second question is a bit more about M&A.
I'm wondering if, let's say, under Forward30 and currently, how you see things, is there any kind of room for fixer-uppers where you're going to see immediate term dilution to ROE, but the promise of scale is there? How do you actually see that? Is that more of a distraction from the Forward30, or is there actually room to actually absorb this in? Thanks.
The first question is mostly, yes, it's mostly Malaysia, Singapore. Some updates are coming through. Update in terms of credit cost, in Malaysia and Singapore
Okay. All right. With regards to M&A, Forward30 is all about organic growth. You saw the four Cs, capital, cash, cross-sell, and capabilities. It's all about organic growth. I stress how important it is for us to all hands on deck execute Forward30. Given all the various uncertainties we're seeing in the market, it's even more important that we basically remain vigilant on execution. With regards to M&A, look, we are a large player. Whenever there is an opportunity, of course, we will evaluate because there's always ways to grow organically and inorganically. It's something that we will evaluate. Yes, I do think M&A is always a distraction. That is normal in any circumstance, hence why, if there needs to be any M&A in the industry, there must be very clear synergies. Synergies must be able to be extracted, and there must be value.
It must be at a good price. Absent of these factors, there's no point to go execute an M&A. M&A will only be done if these things can be proven, because M&A, like it or not, is always a distraction to ongoing execution. Our 30 plan to date is all organic.
Understood. Thank you.
We don't have any further questions at the moment, Khairul, there was one more question that came through here asking for your breakdown again in terms of the NIM guidance by country.
Okay. Just very quickly, right? At the group level, it's stable to -5 basis points. Malaysia is also stable to -5 basis points. Niaga is 3.9 basis points- 4.2 basis points, which implies a -20 basis points to +10 basis points. Thailand is at 2.1 basis points, that implies a -10 basis points. In Singapore, it's a -10 basis points broadly. Around there. From 1.4 basis points, it goes to be around the 1.3 basis points sort of level.
Okay, thanks. Okay. Shall we give everyone a chance to ask a question anymore? Raise your hands, anyone. Okay, I think that's all it is. Thank you everyone for this. I'll hand this back to Novan for his thank you and that's it.
No, thank you, Steven. Thanks, everyone, for joining us this afternoon. Have a good weekend. For those in Malaysia, have a good long weekend. Thank you very much.
Thank you