Good afternoon, ladies and gentlemen. Welcome to CIMB Group's financial results briefing for the third quarter of 2024, hosted by CIMB Group CEO, Novan Amirudin, and Group CFO, Khairul Rifaie. My name is Steven from the CIMB IR team. You should have received the analyst presentation and financial statements via email from the Investor Relations of CIMB Group. If you have not, the documents can be found in the IR section of our website at cimb.com. Before we begin, please be informed that this briefing is being recorded. I would like to encourage everyone to please include your name and company on the Teams app to allow us to better 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 function in Teams.
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. Due to popular demand, we have decided to organize our results briefing in the afternoon as opposed to waiting to a Friday late evening. We hope this is a lot more convenient to most of you. I will start first with a summary of our third quarter and nine months performance for the year. After that, I will hand it over to Khairul to go into the details. I am proud to announce that our net profit is up 13% year-on-year, to MYR 5.9 billion for the nine months of 2024. This is driven by a number of factors. We continue to benefit from our ASEAN portfolio, serving diverse client segments. Malaysia and Singapore outperform in line with both economies. Indonesia remain resilient despite the intense competition seen there, and Thailand is stabilizing.
We maintain our disciplined execution while being nimble and responsive to current market trends. The strategy that we've been articulating since the early part of the year, where we're pivoting to a pricing discipline and deposit-led strategy to mitigate the NIM compression seen last year, especially in Malaysia, is continuing to pay off. We have now seen three straight quarters of banking book NIM expansion. If you recall, in the fourth quarter of 2023, NIM banking book was 2.59%. It has now expanded to 2.75% in third quarter of 2024. This was mainly achieved from the strategy of optimizing the deposits with our CASA ratio now at 42%. Just to recap, back in September 2023, that CASA ratio was 39%. You would also recognize that from early this year, we've started to break down our NIM numbers into the group NIM as well as the NIM banking book.
It is the NIM banking book that I'm focused on, given this is really the franchise value. However, as we approach towards the year-end, we are seeing competition for liquidity intensify, and we do expect NIM to normalize and see some pressure. On the loan growth side, in constant currency terms, this has grown 4.3% year-on-year, which is pretty much in line with the markets that we're operating in. With regards to cross-sell, so NOII expansion expanded by 14.4% year-on-year. This is as a result of stronger fees, treasury client sales, and trading. In fact, our NOII ratio is now at 31.8%. To recap, nine months 2023, that number was 30.1%. Treasury client sales is up 18.7% year-on-year.
This will be a new disclosure item that we'll be doing from this quarter onwards, where we will be breaking down our treasury and FX income into trading as well as treasury client franchise. You will see the details of that later in this presentation. A cost perspective, we continue with the cost efficiency work that we have been embarking on over the last few years. Cost to income ratio has now improved to 45.9%. It is showing a sustainable and stable number. To be clear, this is not at the expense of investment in technology. You will see later in the presentation that technology investment is actually up 9.3% year-on-year with the tech CIR now at about 7.7%. Moving forward, this will be roughly a range, say, over percent that we will be setting aside for tech investments.
Tech is key, and we will continue to invest to strengthen our resiliency, and improve our customer proposition. Moving forward, we will continue to look for ways to further optimizing costs, but without compromising any investments. In line with the resilient markets, but also due to our own transformation efforts, on the culture and on the risk side over the last few years, we are continuing to see further improvement in our asset quality. You will see later in the analysis, but GIL has continued to trend down. It was 3.2% in September last year. This has now gone down to 2.3%. Our allowance coverage ratio, I'm pleased to announce that it has further increased. The coverage is now at 102.6%, higher than our last discussion.
This brings our nine month 2024 ROE to 11.7%, and our CET1 ratio at 15%. We believe that our capital level is strong to give us future flexibility, as we move into the next quarter where we're seeing a lot more volatility as well as headwinds. I will now hand it over to Khairul to go into the details of the financials. Khairul, over to you.
Thank you, Novan, and good afternoon, everyone. On the key highlights, like Novan mentioned, we had a very robust Q-on-Q and year-on-year operating income growth. This is really a reflection of our diversification. You can see the driver here. You can see Malaysia recording very strong growth on a Q-on-Q basis, and Singapore growing robustly at 28% year-on-year. Despite the investments in terms of OpEx, despite the investments that we made on the technology front and the cost escalation in terms of personnel cost, we still managed to record a good positive jaw of 80 basis points, resulting in our cost-to-income ratio on a year-on-year basis improving by 40 basis points to 45.9%.
If you look at our margin trend on the NIM banking book, last year in the fourth quarter where it was at the trough, where we had some seasonal impact on the pricing of funding, it was a low of 2.59%. That continuously improved over the year of 2024. For the current quarter, we improved the NIM banking book by 3 basis points. In totality, for the nine months year-on-year, we improved margins also on the NIM banking book by 3 basis points to 2.72%. In the prior year, for nine months, that was at 2.69%. Asset quality indicators, you can see that trend continuing to improve over the past few quarters. Similarly, as a result of the improvement in our gross impaired loans ratio, our allowance coverage has ticked up further during the quarter by 1.4 percentage points.
Briefly, next slide on the highlights on our segmental results on slide five. On consumer banking, overall, we have a very good top-line momentum. On a year-on-year basis, the top line really driving the year-on-year growth, the top line growing at 7.4% year-on-year, driven by wealth and also margin expansion. However, this is offset by higher ECL due to the reallocation of some overlays in the prior year that resulted in a higher ECL this year. If you look at it from a Q-on-Q basis, revenues remain pretty robust and stable, and that is, however, contributing in terms of the growth of PBT on the lower ECL Q-on-Q. Commercial banking overall, whether you look at it on a year-on-year or Q-on-Q basis, the numbers is really driven by the asset quality remaining strong. The year-on-year and Q-on-Q growth is mainly driven by lower provisions.
In addition to that, Q-on-Q, we had a pretty strong third quarter for NOI in commercial banking. Wholesale banking overall, very strong markets-related income and also fees, in addition to the strong sales number on trading and FX, really driving the top-line growth on a year-on-year basis by 12%, driving the overall PBT growth, which also been contributed by lower ECL year-on-year. On a Q-on-Q basis, wholesale banking, although the top line remains well supported Q-on-Q, this is offset by some of the conservative provisioning that we are doing in Malaysia. Also last quarter, in the second quarter, we had a more significant Singapore write-back. CDA and group funding. CDA is doing well in terms of trajectory, both on a Q-on-Q and year-on-year basis. Overall, however, we are taking additional expenses under group funding, impacting the PBT on a year-on-year and Q-on-Q basis. Next slide on PBT by country.
The strong, robust top-line growth in Malaysia is really driven by margin suspension, good capital markets activities driving that top-line growth of 13%, driving the overall PBT year-on-year growth. On a Q-on-Q, similarly, the top line is growing at 8%, driving that 13.8% PBT growth. Indonesia remains resilient, the growth in PBT, both Q-on-Q and year-on-year, is really a reflection of the underlying asset quality that remains benign, driving the lower ECL number both on a year-on-year and Q-on-Q. Thailand, the momentum during the second quarter is slightly picking up, overall, year-on-year and Q-on-Q, PPOP is showing growth. This is offset by higher ECL, both Q-on-Q and year-on-year. Singapore, a very strong performance driven by both NII and NOI. On a year-on-year basis, the top line growing at 28% year-on-year is really driving that strong PBT growth.
On a Q-on-Q basis, despite the top line being relatively sustained, the lower PBT is driven by the higher recoveries and write-back that we recorded during the second quarter. Slide seven, the breakdown of the P&L. Firstly, on operating income. Overall, like what Novan was highlighting, our growth was pretty robust, driven by both in terms of the NIM expansion and also trading and FX. On this slide, I'll just focus on the NII, since we have a new disclosure on the subsequent slide. If you look at the NII growth, is really underpinned by, on a reported basis, our margins expanding by 1 basis points. Breaking that down, we like to focus more on the NIM, banking book, that expanded by about 3 basis points Q-on-Q, and that's really driven by Malaysia expansion of margins by 4 basis points Q-on-Q.
Underlying that expansion in margins in Malaysia is our cost of funding coming down by about 8 basis points and two drivers. One is our wholesale funding, [SMD]. The rates have improved during the third quarter, but the bigger driver is really our liability optimization in terms of the wholesale funding balance. We managed to optimize the expensive funding to a lower number during the third quarter. Secondly, in Malaysia, we still continue to benefit on the consumer portfolio cost of deposits from the pricing cuts that we did in 2023. We are still getting the benefits, but it is towards the tail end of that benefit coming through in the third quarter. Offsetting the positive coming through from Malaysia is Indonesia. We had a NIM compression Q-on-Q by 15 basis points. This is driven by a couple of things.
Our asset yields were lower, in particular on the securities book. There was also a slight creep up on the cost of deposits on the consumer side. Thailand, that is broadly stable. A slight contraction of 2 basis points, mainly on the cost of funding. On the other hand, Singapore expanded margins slightly by 2 basis points as we preemptively cut our deposit rates and also some of our campaign deposits running up to our expectation that the rates were going to be cut in September. Overall, you can see the NII growing well, strongly at 6% year-on-year, driven by strong asset growth and also in terms of the expansion on the banking book NIM by 3 basis points year-on-year.
Most of that is driven by Malaysia margins expanding by 4 basis points as we continue to focus on deposit and also the disciplined approach on loans. Moving on to slide eight. This is the new disclosure that Novan mentioned in terms of the breakdown of our NOI to further give a bit more insight into our client franchise NOI business. If you look at the growth in terms of Q- on- Q, offsetting that strong growth on trading and FX is fees and commission coming down slightly. That's mainly driven by consumer banker and wealth, slightly weaker in Indonesia and also Malaysia. Wholesale banking fees was broadly flattish Q- on- Q. We had a lumpy deal-related IPO fees in the third quarter, which similarly in the second quarter, there was a lumpy loan syndication fees coming through from Singapore.
That was again, somewhat repeated in terms of deal-related fees, in the third quarter. Trading and FX, you can see now we were breaking down that 12% Q- on- Q growth in the bottom right charts. You can see the client franchise business, which is the sales component, also driving that good growth during the quarter at 8% Q- on- Q. Markets already performed very well with markets-related income on the trading side that grew by 15.7%, mainly driven by Malaysia and Singapore. If you look at it on a year-on-year basis, our client franchise sales business grew strongly at 19% year- on- year. Markets obviously was good. We recorded good trading revenues at 25.9% year- on- year. Similarly, fees and commission also on a year-on-year basis grew well at 11.3%.
This is both driven by consumer on the wealth and banker and structured products and on the wholesale banking side as well, fees grew year- on- year. Partially offsetting this is under others that contracted year- on- year. We had a bigger NPL sale number last year. We recorded NPL sales amounting MYR 250 million compared to this year of about MYR 170 million. Moving on to the next slide on OpEx. This is well under control. The increase in expenses on personnel and marketing is more of a catch-up of expenses, especially on marketing. Personnel is really a reflection of the robust top line where in this quarter, we accrued more bonuses during the quarter. On a year-on-year basis, the driver of that 7.7% growth is really on technology, given our investments in this area and as projects go live. Growing at 9.3% year- on- year.
Personnel costs, that growth of 10.3% is a reflection of our accruals on the collective agreements that's still undergoing negotiations. Also, the full- year impact of the headcount increases that we did last year. Lastly, we have paid significantly a bit more in terms of incentives, which is related to the higher fee income on the consumer side. Despite this 7.7% year-on-year growth, we are still recording a good positive draw, and we're now at a cost-to-income ratio of 45.9%. Moving forward into the fourth quarter, as you have maybe noticed in the last few years, there's always a catch-up in expenses in the fourth quarter. This year, I think it's unlikely the case as we've made some of that catch up during the third quarter. Next slide, on slide 10 on provisions.
The underlying asset quality remains strong. This is reflected in the relatively low ECL numbers. In the third quarter, our credit cost was at 18 basis points, bringing our nine-month number credit cost to 25 basis points. Just some breakdown of that number. If you look at the chart on the bottom left, firstly, in terms of recoveries, that remains relatively a high number similar to last quarter, driven by further recoveries coming through in Singapore. If you look at the non-retail side, that picked up slightly as we took some conservative provisioning to offset some of the low provisions that we are recording on the retail side. If we look at it from an underlying basis, when we look at our watchlist, there's no significant names that we are particularly worried about that will result in any lumpy provisions going forward.
If you look at the retail number, that has come down similarly because of the timing of provisions that is a bit volatile. As what I have highlighted in my previous briefings, the numbers between retail and non-retail can be volatile as we manage some of the write-backs on the overlay. On an underlying basis, the delinquency on the retail side has remained stable across the board. We are seeing very few basis points increases in terms of delinquency on the auto side, we continue to monitor that. Overall, our delinquency still remains very stable on retail. On a year-on-year basis, stronger recoveries are coming through from Singapore. On the non-retail side, that has come down. In 2023, we made some top-up provisions in the Malaysia leisure sector. We made some provisions in Indonesia infrastructure. The absence of that is resulting in the non-retail provisions coming down.
On the retail side, this is really in terms of the increase, is really in terms of the timing of how we manage our overlays. As what I mentioned earlier, delinquencies, even on a quarterly basis or even on a year-on-year basis, we are actually seeing a good improvement on delinquencies on the retail side. If you can see, that is showing in slide 11. If you look at our gross impact ratio, that has been trending down from last year to now, 2.3%. The current quarter's improvement, that 20 basis points down to 2.3%, is really driven by all our key operating markets, Malaysia, Indonesia, Singapore and Thailand, and that has resulted in our allowance coverage ticking up to 102.6%. On the balance sheet side, on a reported basis, this has been impacted by the FX movement.
If you look at it on a constant currency basis, we are growing at 60 basis points and 4.3% year-on-year. We continue to be disciplined in terms of the corporate banking growth, in particular Malaysia. If you look at Malaysia, that 4% growth underlying on the commercial and consumer side, that is growing strongly. Commercial is growing 8% year-on-year in Malaysia. In consumer, that is growing strongly as well at 5.6% year-on-year. Thailand, the main growth driver is consumer, growing at 5%. In Indonesia, fairly moderate growth both on corporate and consumer, driving that overall country, 6.4%. In Singapore, corporate really driving that growth. We are seeing some challenges in Singapore on mortgages. That is coming off slightly year-on-year. Moving on to deposits on slide 13.
If you look at it on a constant currency basis, Q- on- Q, that has come down by 2%, and this is mainly due to the liability optimization that we did in Malaysia, where we let go some of the expensive wholesale funding during the quarter, but also contributed by our CASA coming down by 1.8% Q-on-Q, and this is mainly on wholesale. We are seeing also Q-on-Q consumer Malaysia dropping. This is, however, partially offset by very strong Q-on-Q growth on consumer Thailand and Singapore. Overall, you can see every country, on a quarterly basis, is showing a good improvement in CASA ratio, driving the overall group CASA ratio to improve by 1.1 percentage points to 42%. On capital, on slide 14, good trajectory on capital to now 15%.
All our LCR ratio is well above our regulatory requirements and is fairly stable Q-on-Q. Moving on to the performance by segment on consumer banking on slide 15. You can see what I mentioned earlier in terms of NOI is slightly weaker, and that's mainly on the fees on our banker and wealth in Malaysia and Indonesia. However, this is offset by lower ECL Q-on-Q and hence recording a good PBT growth. Year-on-year, very strong top line on consumer banking, driven by some margin expansion, good wealth and banker, and also FX driving that total 7.4% year-on-year growth. ECL is higher due to the timing in terms of how we are managing our provisions. On gross loans, the underlying here, if you look at Malaysia, that's growing at 5.6% consumer year-on-year. On constant currency terms, consumer banking is growing around the 5% level.
Commercial banking on slide 16. Here you can see in terms of the numbers on both Q-on-Q and year-on-year, the improvement on PBT is really driven by the benign asset quality backdrop. An improvement in terms of the ECL number. During the quarter, the NOI picked up slightly due to a small Niaga NPL sale. On the balance sheet side, Malaysia really driving that growth, growing at 8.3%. On a constant currency basis, commercial is growing around 7%. On slide 17, wholesale, a good quarter on the top line, growing at 6.6%. This is, however, offset by some conservative provisioning that we are doing, where it's offset some of the good PPOP growth. Overall, if you look at it from a year-on-year basis, credit costs or ECL is relatively low, driven by the write-backs coming through in Singapore this year.
Markets and fees related and sales related income is growing strongly, and you can see that under NOI growing at 20.4%, driving the overall operating income growth of 12.1%. Loans on a reported basis, that contracted, and that is mainly driven by our disciplined strategy, tactical strategy in Malaysia, where the loans are contracted year-on-year. Slide 18 on CDA and group funding. Overall, the main driver of the contraction on PBT Q-on-Q and year-on-year is on the group funding side, and this is mainly due to the higher OpEx that we are taking centrally at group funding. CDA trajectory, both Q-on-Q and year-on-year is positive, and that is a reflection of the indicators that are also trajecting well. You can see on Touch 'n Go Digital, total registered users and annual transacting users recording very strong growth.
On the CIMB Philippines as well, the deposits and the number of customers also showing very strong growth. As a result, if you look at slide 19, the narrowing of the CDA losses and also Philippines breaking even, that has contributed to the overall group ROE expansion for this year by 10 basis points. That trajectory in terms of Philippines in terms of breaking even is really driven by the very strong revenue growth. As at nine months, at MYR 540 million, it almost equals the full- year revenue number last year. Lastly, on Islamic banking, on slide 20, the good growth on Q-on-Q is really driven by lower ECL. On a year-on-year basis, the strong PBT growth is driven by net financing income growing by 12.9%, underpinned by good growth in terms of the balance sheet at 11.4%, mainly coming from the consumer side.
That's the end of the financials, and I pass the presentation back to Novan. Thank you.
Thank you, Khairul. We are approaching into the last few weeks of our execution of our F23+ strategic plan. We continue to be very focused, very vigilant, in executing our plan, which we've been working on over the last five years. If you look at page 23, based on our performance as of the nine months, we are on track to meeting our ambitions. We have transformed and built all the building blocks within the bank, to basically be on track towards achieving the ambitions that we initially set up when we embarked on this plan. Moving into the last quarter, given some of the headwinds and challenges that we're seeing globally, whether is it with regards to global policies being inflationary, the new U.S. administration, I think fight for liquidity will intensify.
As a result, we do see, at least on the ROE side, for us to be meeting our full- year 2024 guidance that we provided at the onset of this year, which is 11%-11.5%, as opposed to our F23+ initial ambitions. I think with regards to cost income ratio, asset quality, and CET1, we will be close towards those earlier aspirations. Page 24 shows you the progress that we have made over the last five years. If you look at within the businesses within each country, the asset allocation has been executed according to plan. If you recall, we were going to exit a commercial business in Thailand as well as reduce our exposure in Singapore and Indonesia while we fix and turn the business around.
That has now happened. As you can see, in Singapore and Indonesia, the commercial exposure has now reduced, while we have reallocated that capital towards the consumer business. Thailand, we exited the commercial business and we have since reallocated that business into the consumer, and also the wholesale businesses. Page 25. This goes to the point about our investments in tech and resiliency as well as our new culture, which is more focused on risk and resiliency and risk awareness, as well as new governance frameworks that we've put in to ensure that the organization manages risk a lot better. You're seeing the results here with regards to our tech platforms. It has remained resilient and maintained above the targets that we have initially set for. Page 26. On the sustainability front, this is a very important purpose of CIMB Group. We are not just a bank.
We are very clear with regards to our purpose to advance customers and societies in the markets where we operate. Our goal is to foster inclusion, ensuring that we make lives better for the societies around us. I'm pleased to mention that over the last five years, we have mobilized over MYR 27 billion of loans to the B40 in Malaysia. We've also embarked on a number of educational programs on the financial literacy front. With regards to our sustainable targets that we have set upon ourselves, we initially set a MYR 100 billion target, a target that was revised upwards a couple of times, but that target was for 2024. We have now exceeded that, and we have mobilized to date, MYR 105 billion or more than MYR 105 billion of GSSIPS financing.
With regards to the SME business, we have disbursed more than MYR 23 billion of loans to the SME business in Malaysia over the last five years. As I mentioned previously in our last results discussion, we are the first bank that has announced all our six sector targets towards meeting our sustainability ambitions. With that, going into page 28, I would like to summarize that we're extremely grateful and thankful to our customers, partners, and team CIMB for the strong nine months performance, which is within our targets. We continue to progress with our sustainability journey. As I've mentioned, we have met our MYR 100 billion sustainability target. As we approach the year-end, we are seeing greater market uncertainties as a result of, you've seen the global policies being inflationary, expectations of slower reduction in U.S. policy rates. All these, we expect to lead to heightened competition for liquidity.
As a result, we will remain cautious in our outlook. We will be nimble with our deposit-led and client profitability strategies. We will continue to focus on efficiency and resiliency. Although we expect NIM to normalize. I did mention earlier in this presentation that we do expect NIM to actually see some pressure in the fourth quarter. We are on track to achieving our full year 2024 ROE guidance of 11%-11.5%. We are in the process of devising our new strategic plan as F23+ is ending this year. We will take into account of our competitive strengths, our endowments, and key market trends. In the short to medium- term, given we are expecting a heightened competition for liquidity, our new plan will be focused on building a stronger deposit franchise.
This is working off the deposit-led strategy that we have been embarking on throughout the year. We want to transform our business to be more resilient and simpler, better, and faster. We were targeted to announce this new plan by the first quarter of 2025. Once again, we are privileged and honored to serve across ASEAN and a diverse customer base. We will continue to play our purpose to be inclusive as we advance customers and societies in the markets that we operate. Thank you very much.
Thank you, Novan and Khairul, for your presentation. Ladies and gentlemen, we will now begin the question- and- answer session. Just a reminder, if you would like to ask questions, kindly use the raise hand function. Okay. We have a couple of hands raised already. The first is from Tushar from Nomura. Tushar, over to you.
Hi, thank you for taking my questions. The first one is on the FY 2024 guidance slide. I noticed that you changed the CET1 FY 2024 guidance to 14.5%+. In the previous quarter, it was 13.5%+ for the guidance column. Are you signaling less room for special dividends or higher dividend payout ratios, going into the second half or the final quarter? What assumptions for the Basel operational risk weight adjustments are you taking into account for that? Thank you. That's my first question.
Okay. Yep, Tushar. I think we wanted to refine this because, especially after the first half of the year when our capital was at 14.5%, we had a lot of questions, right? With regards to our actual capital ratio and our target that we set out earlier in the year. To provide better clarity to our view on our capital, where we want to remain prudent, therefore, hence why we have come up with an updated number in terms of the guidance, right? Which is 14.5%. It's what you rightly pointed out, right?
On a BAU basis, in terms of our payout, it's still maintained at 55%, but for the remainder of the year, it is very unlikely that we'll do any further special dividends as what we have communicated to the market as well during the time when we did that special dividends this year, as we wanted to have some buffer going to fourth quarter, like what Novan mentioned. Equally important, going to our next strategic plan, we do want to have a comfortable level of capital. The second part of that question on the Ops RWA Basel III, which will be implemented in January, it is negative, but it's fairly small, and it's very manageable in terms of the impact.
Okay. Also on NIM, you just briefly alluded to some competition in the final quarter, which is seasonal in nature. Fair to say that for the banking book NIM quarters of expansion, fourth quarter is likely to see some compression, in Malaysia. What about other markets and group level? Any preliminary thoughts on those?
Other markets, just expand a bit on Malaysia, right? We do expect some level of margin compression on the NIM banking book in Malaysia. I suspect that the level of compression will be slightly less compared to the third quarter, fourth quarter in 2023, right? We are expecting that. Most of that is coming from the seasonal pricing competition that we have seen in the last couple of months, both on wholesale and also retail. That's number one. On the other countries, in Thailand, we are expecting that to be relatively stable. In Singapore, we may get some margin compression coming through as the asset starts to catch up in terms of the rate movements.
Hence, because in the third quarter, we have proactively taken early steps to cut our deposit rates, and hence why during the second quarter we got the NIM expansion in Singapore. That potentially could normalize in the fourth quarter. In Indonesia, third quarter was somewhere around 4.07% for that particular quarter. We would likely see that number hovering around at that 4%, so it's either stable or slight compression as well coming through in Indonesia. Overall, at the group level, on a Q-on-Q basis, third quarter to fourth quarter, we're likely to see some compression.
Yeah, if I were to add, Tushar, seasonal is one. Second is really the macro developments. Looking at what has transpired globally, interest rates are expected to remain higher for longer. We do expect movements of liquidity into markets, which have higher interest rates. This, plus the typical year-end, seasonal period, in our view, is going to impact liquidity or tighten liquidity during this period.
Okay. One more question, if I may, on the personnel costs running at 10% year-on-year. You mentioned there are some incentives, some higher bonus accruals, et cetera, is there also the element of collective agreement adjustments built in, that proportion of growth, should it normalize down next year to more mid-single digit kind of run rate?
Yes, there is a component, right? There is a component within that 10.3% year-on-year growth of our accruals on CA, collective agreement. As the negotiations are developed, we adjust our accruals accordingly, right? That pickup going into next year, if everything remains status quo in terms of negotiations, you are unlikely to see a significant pickup, like what you saw in 2024. It all depends on how the negotiations develops, because we are taking that accruals very dynamically.
All right. Thank you. Thank you for taking my questions.
Thanks, Tushar.
Okay.
Our next question comes from Yong Hong, from Citi. Yong Hong?
Hello, Novan, Khairul, Steven. Thanks for the opportunity. Firstly, just on NIMs, do you have the numbers for October 2024 NIMs versus October 2023? Because I think your NIMs is roughly at where you were in third quarter 2023, both in your group and banking books. Just wanting to get a sense on how much that will normalize into fourth quarter.
I won't disclose what was October's NIM, as a guidance, fourth quarter versus fourth quarter should be better. Fourth quarter 2024 versus fourth quarter 2023, should be better.
Okay, got it. That's helpful. Maybe just on OpEx, I think it appears that you have some sort of operating cost to income ratio band, such that there will be cost catch-up when income is strong, like in this quarter. Should we think about cost optimization more of maintaining at the current cost income ratio level, or something that should be improving over the next few years?
I think, putting aside the seasonal impact, right? We've taken most of the seasonal impact in this current quarter compared to the previous years, where we took the seasonal impact on OpEx, typically, in the fourth quarter. I think in terms of cost optimization, that would be more of a structural and fundamental question, which goes into the next strategic plan.
Yeah. On that one, there's no shortcuts, Yong Hong. We're going to be looking at more sustainable cost optimization initiatives that we will announce with the new plan, which will then signal what that level of optimization would look like. I think up to end of this year, it's within that 45%-46% that we initially set out in F23+. The new plan will then identify more sustainable structural areas that we want to work on, we will then share what the new target or new level would be.
Okay. Got it. Just a mini follow-up, I think you mentioned that your fourth quarter OpEx is done in the third quarter, or are you trying to say that it's moved over two quarters, for this year?
If I get your question correct, sequentially on a Q-on-Q, 4Q to third quarter is likely to be flattish.
Okay, got it. Maybe finally, on capital, is the impact from the currency fluctuation roughly neutral? Given there's some negative impact to OCI, but also some translation impact to RWA.
On a net basis, again, if I get what you're saying, right? On a net basis on CET1, there is a slight negative impact in September from the FX. A slight negative impact, and that is already reflected within that 15%.
Okay. Adjusting for debt, what will be the numbers? Because I think obviously the Ringgit had some normalization that we have been seeing so far this quarter.
Yeah. On underlying, if you exclude the FX impact, is in the low tens basis points impact to CET1.
Okay, got it.
We've been about a few tens basis points better than this.
Okay, got it. I think last quarter, maybe just a final follow-up. Last quarter you mentioned about Niaga payout ratio, and I think some Indo banks are talking about higher payout ratio. Just wondering if that can be the case for Niaga this year, such that your group payout ratio can be pushed up higher than the 55% guidance that you have been talking about?
Well, that one will be subject to our discussion with the regulators, because dividend payout, of course, is linked to the level of capital and what the level capital is versus all the other banks on the street or banks within that KBMI 3 category. That one is for us to discuss with the regulators.
Okay, got it. These are all my questions. Thank you.
Thanks, Yong Hong. The next person in line will be Harsh Modi from JPMorgan.
Hi, sorry. Thanks for this. Couple of questions. First, on the non-interest income, this is a great disclosure on slide eight. Since we have had a much stronger outcome on trading and FX, compared to the more, I would think, sustainable numbers on fees on NOII. As we look into next year, a bit more volatile outcome on Asian currencies, does that generally help or directionally when ringgit was just appreciating or just depreciating, that led to a better outcome? I'm just trying to understand how do we think about sustainability of overall non-II over the next, let's say, 6- 12 months? Then I have a question on capital after that. And also-
Okay
I know you spoke about some of the changes you were doing in terms of KPIs and all of that. That optimization also, do we start seeing it in full force in 2025, or we have to wait for that outcome as well?
Okay. No, thanks, Harsh. On the question on NII, this is why we are now disclosing the trading and FX into two components, the trading component as well as the treasury sales component. The treasury sales component is really our banking franchise because that is basically the fees or the income that we derive from our clients as opposed from our own prop book. If you want to think about our client franchise, it's really a combination of both the fees and commission number, which is up 11% year-on-year, as well as our treasury sales number, which is up about 18.8% year-on-year.
If you want to think about this moving forward and the increased volatility, I encourage you and the Street to look at both the fee and commission lines as well as our treasury client sales lines, because these are basically the sales business and the bankers going out to basically do cross-sell. The trading number, which is up 25.9% year-on-year, yeah, that is volatile and that will be based on the market, and when there is a window to basically take opportunity off, we would. Yes, I encourage you to look at the fee and commission line as well as the sales lines.
Right. Thanks for that. Second bit on capital, which, again, I'm trying to just understand why do you need to keep such high CET1 numbers? I understand that, yeah, Street has high numbers as well. But if in the new post-Trump world, most likely EM ASEAN will not have same degree of growth. Singapore may have a bit, but again, you're talking about Singbank, which is talking about 2%, 3% loan growth. You don't have a lot of opportunity to deploy RWA. Basel III.5 doesn't seem to have a big impact, as Khairul said, manageably. Why are we keeping so much capital? Is it BNM or are you looking to basically say things are going to become tough and if something really juicy comes out in terms of deploying capital inorganically, that's the reason?
Basically, you are just waiting for once you come with your next five-year plan, and then you give us a good news on a huge buyback. I'm just trying to understand what is the reason to keep such high CET1, because you are generating a lot of capital. We have seen what happened to some of the Singapore banks, some of the Australian banks when they came and paid out a lot of capital or promised about capital, stock massively rallied. What's stopping you from doing the same? Any indication of, let's say, two years out, what is an ideal CET1 number that we should work with? Thank you.
Thank you, Harsh. Yeah it's a multi, I guess, faceted question, and my answer would also cover a number of areas. Look, it's a number of factors in terms of us determining what the right level of capital should be. One, as you mentioned, is our own discussions with the regulator. This is not just the regulator within Malaysia that covers the 15% CET1 ratio, but also cascades down into all the other regulators in the markets that we operate, that determines the level of capital that we need to hold within each of these markets. Second is comparing us versus the peers. If the peers are at the level of, say, 14%, 15%, 16%, then we feel that that's a level that we need to be cognizant of, so that we're not too far off away from the peers. Third, yeah, you're right.
The Basel impact at this point in time, as we think about it's probably not very material. Is it coming? It's definitely coming. It's in the works. Operational RWA will come into play in January. Basel III in Malaysia will come a lot later. We certainly have the level to be able to absorb any increase in requirements as required. Fourthly is as we embark onto our new plan, and with all the current volatility that we're seeing, post the new U.S. administration. We want to make sure that we are going in with a position of strength. We have full flexibility in terms of how we want to grow. I hear you that potentially Southeast Asia may be impacted from the tariffs that U.S. may implement, but we're not sure how that's going to play out yet.
The tariffs, he's mentioned a couple of countries in Mexico and Canada. China would basically come later. How the supply chains unravel, that is something that we're not yet sure. In fact, we are still feeling positive about Southeast Asia, and it's something that we want to make sure that we're ready for. When you triangulate all these points, is why we have the current capital level that we are. We don't think it's too much, but rest assured, from the special dividend that we have been paying over the last couple of years, we will always continue to look to optimize it. If there's not much RWA growth for us to deploy within the region, then yes, if it makes sense for us to return that to shareholders, then that's definitely something that we will consider.
Yes, I do want to share a much more robust capital plan strategy when we announce our new strategy in the first quarter.
Great. Just one final question, I wanted to double click on two things. One, do you expect in next two years to release capital from any of your markets? That's one. Second, are you comfortable making a commitment that you will not accrue any more capital?
Well, that is a complex discussion. Like how we are clinical at looking at the capital levels of Group, me and my team are also equally looking at the capital levels of all the relevant countries. We are in active discussions with all the regulators in terms of what that right number needs to be. Regulators just love banks to hold on more capital, and we want to try to optimize. It's always a very constructive discussion. Whether we're going to release capital, I think that is a function of our discussions with the regulators, what the other peers in the market is currently operating at, what is the market outlook. We will continue to actively look at our capital levels. If you're asking me, is it us just sitting back and letting the capital grow? That is absolutely not the case.
In terms of the commitment to give, I think it's a bit tough at this point in time. All I can say is we are always actively looking at how we can optimize capital. Remember, for us to optimize capital from the countries, that's also mobilizing cash to the Group upwards. That is something that is important to us also.
Got it. Thanks, Khairul. Thanks so much. We'll wait for your next five-year plan. I'm hoping we'll get a lot more clarity. Thanks again.
Sure, Harsh. I think you had a question on KPIs as well, and I reckon that is KPIs of the bankers. Those KPIs, the reason why now we're disclosing all these metrics is really to mark to market the KPIs of the bankers. You can see there's a treasury sales number here. Fees and commission has always been separately disclosed, NIM banking book. All this is to put a mark to market of our banking franchise and the KPIs will be linked to that.
No, that's brilliant. Thanks for that. Yeah, that's super useful.
Thanks for that, Harsh. We have another person on the line, Benjamin from UBS.
Hi, Novan. Hi, Khairul and Steven. Just three questions. The first one is on the loan pricing competition in Malaysia. I see the system data of the loan yields are coming down. Just wanted to think about NIMs after Q4. Q4 NIMs will be down, but if loan pricing competition remains intense and loan yield continue coming down, just want to hear your thoughts on that.
On the loan yield side, for CIMB, as you saw this year, we've been very disciplined and tactical, especially on the corporate banking side. You can see that in the corporate banking number in terms of loan, coming off on a year-on-year basis. That's number one. Number two, on mortgages, although not yet in our book, we did increase our pricing about 18 months ago, and that was by about 10 basis points- 20 basis points. Some of that loan approvals on mortgages will start to come onto our book. Obviously, with our current book, that is continuously coming down in terms of use. On a net-net basis, on a yields plan for CIMB, it's likely to be stable to slightly compressing as how it has been for many years for the industry as a whole.
I think the bigger component on the NIM outlook for next year, and of course, we will give you a lot more color when we announce our results during the full- year, the biggest component is definitely still on the deposit side. That would be the biggest driver.
Okay.
If you just look at all the, I guess, the recent announcements from the various banks in the country, from the second quarter to the third quarter, we've seen a number that came earlier than us. I think it's been clear that a lot of players are saying that they're going to be a lot more disciplined with loan growth as well as pricing. We have been embarking on that over the last one year. We are very clear that we will not grow loans until the point that they are value destructive. Yes, although we've been seeing loan yields coming down in the market as a whole, my hope is, of course, as we move forward, players start to price loans according to the risk that everyone is taking on, so that it is basically the fair commensurate to risk.
Okay, that's very clear. The next question, I think, Novan, you mentioned that the new five-year plan will be focused on building a stronger deposit franchise. Just wanted to hear your high-level thoughts, like which markets do you see room for improvement on that front?
Well, I would say all markets. We've started this year the journey of being more disciplined with our deposits. We've been telling all the troops out there, we're not going to go out there, win a lot of deposits just by overpaying in terms of rates. We need to win deposits without pricing as a weapon. The bankers have gone out to do that. We've basically optimized the deposits. Bankers have been very disciplined with regards to pricing, and we're seeing the results over the last three quarters. We now want to take it one next step further. We want to give the tools to our bankers to win those deposits. Right now, they are now engaging in discussions with clients to win deposits without rates.
We now want to give the tools, with regards to a better transaction banking system, a better banking experience, for our bankers to be able to work with customers to basically place deposits with us because we are just a much more convenient place to bank. We just provide a much better and simpler banking experience for our customers. Moving into that next multi-year plan, it's really going to be focused on that.
Okay. The last one, very quickly, on the Thai business, your high-level thoughts, because the ROE is below your group level, consumer business is not doing as well as you're expecting. How are you thinking about the Thai business overall?
It is a challenging market. Thailand, as a whole, is a challenging market. They went through a leadership change just a couple of months ago. Even the large banks in Thailand are making, at most, 8%-9% ROE. It is definitely a very challenging market. The NIMs that you get from Thailand is not commensurate with the credit costs that the banks are taking on. We are going to have a lot more focus on Thailand, a much more focused strategy as opposed to being a universal bank to bank everyone. We have already done that in F23+, where we have exited commercial, but it is still not working. As you rightly pointed out on the consumer side, it has been challenging.
If you deep dive into consumer, it is really the auto finance business that has been very, very tough for us, and that has been a challenge over the last many years. The wealth side has actually been doing very well. As we move into the next plan, the focus is really to reallocate capital away from businesses that is challenging for us, like what we have done in F23+ on the commercial side, and allocate into businesses that make much more sense. We hope to share more details with you in the first quarter, but definitely it is not something that we are just sitting still and letting it accrue 4% ROE.
Right. Okay. That is good to hear. Thanks, Novan. Thanks, Khairul.
Thanks, Ben. We do not have any questions at this point in time. Once again, anyone, if you do have a question or wish to ask any questions, please use the raise hand function and we will unmute your line. Okay. As there are no further questions at this point, I would like to pass the line back to Novan for his closing remarks.
Thank you very much for joining our call today. We look forward to sharing with you our full-year plan when we share, post sharing the full-year results, target first quarter next year, and we look forward to engaging with you on that. Once again, thank you very much for joining our call, and I'll see you again soon.
Thank you, ladies and gentlemen. That concludes our briefing for today. Once again, thank you for joining us, and we wish you have a good evening ahead. Thank you.
Thank you.