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 have the opportunity to ask questions after the presentation by kindly using the raise hand function. At this juncture, I would like to hand over the briefing to Dato' Abdul Rahman Ahmad and Khairul. Dato', over to you.
Thank you, Steven. Firstly, let me thank all of you for your kind patience in joining us on a late Friday of a long weekend. Really appreciate you guys making the time to stay and join us basically for this analyst briefing. Let me start by saying that we had another very positive quarter, very strong start to the year. Our operating income grew 4.7% quarter-on-quarter and close to 13% year-on-year from higher NII and NOII, which is attributable to what we call NIM recovery and expansion, as well as strong capital markets and investment related income. NII rose 2.5% quarter-on-quarter from three basis points NIM expansion, despite muted loan growth, but improves close to 7.7% year-on-year, underpinned by strong loans and security growth despite lower NIM. That's total NIM.
Later, Khairul will show that we will start this quarter to show our NIM banking book. And on our NIM banking book, which means that it excludes Treasury & Markets impact, the NIM on the banking book recovery on a year-on-year was also positive. At the same time, as I mentioned, gross loan grew 7% year-on-year from all countries and segment, and particularly from Malaysia. This is despite, as I said, our clear strategy that we adopted for more than one year now, which is a more deposit-led strategy rather than a loan-led strategy. That has continued to remain quite positive, even though later, Khairul will remark, we probably expect some moderation on the loan growth because we've been pricing up or protecting our asset yield as part of this deposit-led strategy.
Deposits actually grew 1.6% quarter-on-quarter and 8.2% year-on-year, largely driven by CASA growth. This is another thing that we are very happy about. As you know, we've been talking about CASA. CASA is our core strategy. CASA grew close to 1% quarter-on-quarter, but more importantly, 16.8% year-on-year. As such, our CASA ratio improved considerably at 40.8%, from 37.8% in March. Our cost-to-income ratio improved despite the inflationary pressures. I'm sure most of you have read through all the other banks' report. All of us, I think, face inflationary pressures. Because of that, our year-on-year cost went up close to 9%, but it is lower 2.8% quarter-on-quarter because of the absence of accelerated accruals that we did at the end of the last year.
With a strong operating income, very pleased to report that our cost income ratio improved to 45.3%, as the stronger top line delivered a very positive JAWS. The other element that we are very happy to report is that continued improvement in asset quality indicators, our loan loss charge remains steady at 35 basis points. In our total provision, even though it is slightly up or up 26% quarter-on-quarter and 13% year-on-year, it is very much contained. More importantly, what I call resilience or asset quality resilience metrics improved. Our GIL and loan loss coverage improved. Our GIL now is down to 2.6%. For some of you recall that it was much higher, in the higher part of 3s. Our loan loss coverage is enhanced to 101% respectively as at March.
The improvement in operating income, which exceeds effectively OpEx, we have a positive PPOP and contained cost provision. Our net profit grew strongly, 13% quarter-on-quarter at close to 18% year-on-year. I am very pleased to report that our first quarter 2024 ROE is at 11.4%. I think this compares to 10.3% compared to last year and it shows that we are firmly on track to our ROE target for 2024, between 11% to 11.5%. All this is happening whereby our CET1 continues to accumulate. It grows 50 basis points quarter-on-quarter and 70 basis points year-on-year to 15%. I don't think CIMB ever had our CET1 ratio reaching 15%.
It just reflects the fact that I think we are able to deliver the ROE despite the capital build up. Later we will talk about, I guess, how this allows, potentially, for us to look at capital optimization going forward, subject obviously to regulatory requirements or feedback as well as other factors. On a very positive, I will pass to Khairul to give the detailed analysis of the results, and I will come back to talk to you about the progress of our Forward23+ in our final year of execution. Thank you.
Thank you, Dato. On the key highlights of what Dato was mentioning in terms of the drivers of that, like what Dato mentioned in terms of our robust revenue growth on a Q-on-Q basis, that is really driven by all our key operating markets and Malaysia on a Q-on-Q basis, showing very good trajectory or recovery Q-on-Q. The year-on-year, you can see the strong growth is recorded in Malaysia and Singapore, with Singapore both on the top line NII and NOI, Malaysia, mainly on NOI. With that strong growth in revenue, we are recording a good positive JAWS, improving to 45.3%, a very strong Q-on-Q improvement in terms of our CIR. Given our CASA-led strategy, we are recording very good growth on a Q-on-Q and year-on-year basis.
The main driver there, you can see in terms of consumer, growing very well on a Q-on-Q basis, also on a year-on-year basis. Because of our deposit led strategy, we are also growing aggressively our FDs. Because of that, our CASA ratio has come off slightly by 40 basis points. Our asset quality is sustained at good levels in terms of credit costs, well within our guidance of 30 to 40 basis points. You can see some of the other asset quality indicators is also showing good improvement. Our Gross Impaired Loans ratio has come down to 2.6%, and now our allowance coverage has crossed the 100% mark. On to slide five, in terms of our profit by segment.
Consumer banking on a year-on-year basis, that has come down by 10.3%, but this is mainly due to the absence of overlay write-back that was recorded in the first quarter of 2023. A quarter-on-quarter basis, also, slight moderation on the PBT line, despite the top line growing very well at 4% Q-on-Q. This is offset by a higher ECL on a quarter-on-quarter basis. Commercial banking recorded a very good growth, both on a year-on-year and quarter-on-quarter basis, this is mainly driven by the ECL write-back that we recorded this quarter. Wholesale banking, very strong and robust growth, year-on-year and Q-on-Q. A year-on-year basis, this is driven both by very strong NOI and also a lower ECL.
A Q-on-Q basis, this is mainly driven by the positive NOI. CDA and group funding, the good growth, very strong growth on a year-on-year basis is mainly driven by both NII and NOI, whereas on a Q-on-Q basis, this is driven by strong NOI, this is partially offset by higher ECL. Slide eight, highlights of the PBT by country. Malaysia, good growth on a year-on-year basis, driven by both NII and NOI. This is partially offset by higher ECL. On a Q-on-Q basis, very good growth and recovery on the top line, growing at 1.9%. This is partially offset by higher provisions. Indonesia, good growth on a year-on-year basis, driven by lower ECL.
On a Q-on-Q basis, also good growth, driven by higher top line, both NII and NOI, partially offset by higher ECL. Thailand, a significant contraction on a year-on-year basis, this is mainly driven by lower fees and trading. A quarter-on-quarter basis, a very strong recovery in terms of PBT in Thailand. This is mainly driven by better NOI and also lower ECL as we took some conservative provisioning during the fourth quarter last year. Singapore, very strong growth, driven by our top line, for both year-on-year and Q-on-Q. On a Q-on-Q basis, this is further contributed by lower ECL and also lower OpEx. Going into the details of the P&L on slide seven on operating income.
Overall, what we highlighted, very strong growth Q-on-Q and year on year, both on NII and NOI. If you look at NII, the growth of 2.5% is really driven by our overall margin expansion of three basis points Q-on-Q. If you look at that line chart, it's what Dato' mentioned, where we are disclosing the breakdown between the group NIM and the banking book NIM, which is the NIM excluding TNM. You can see, a bigger driver of that is our banking book NIM expanding by 10 basis points. The breakdown within the countries, you can see Malaysia improving our reported margin by six basis points, and this is mainly driven by a lower cost of funding of six basis points.
Another contributor to that margin expansion is also the wholesale funding rates normalizing due to the seasonal pickup on the rates on wholesale funding in the fourth quarter. Indonesia, as we have already seen, the big significant improvement in margin is really driven by loan yields picking up. In Thailand, on the other hand, partially offsetting the margin expansion in the other two countries is mainly due to the cost of funding pressure and also the full quarter impact from the lower yielding bonds that we started buying in the fourth quarter.
Singapore, the slight margin contraction is driven by the shift from CASA to FDs as we start repricing up our FDs. On a year-on-year basis, NII expanded by 7.7%, mainly driven by asset growth, offsetting some of the margin contraction of eight basis points. The main driver is in Indonesia. You can see Indonesia's margins contracting by about 51 basis points. That's mainly driven by the fact that the loan yields didn't catch up in terms of repricing up as much as how the cost of deposits was catching up in terms of repricing up. Malaysia, I would like to highlight that you can see that the contraction has significantly narrowed now to -1 basis points. On NOI, the good growth Q-on-Q is mainly driven by the capital-related income, growing at 25%.
Offsetting that partially is the contraction in fees and other income category. Fees is mainly the driver, where the fee income in the fourth quarter was exceptionally high, driven by wholesale banking in Singapore and also Malaysia. Despite the fact that even in the first quarter, we had a very good pipeline in terms of fees coming through, but the fourth quarter was exceptionally high.
Other income offsetting that weakness in terms of fee income, we had a lumpy NPL sale during the first quarter of about MYR 110 million versus the last quarter of about MYR 20 million. On a year-on-year basis, both fee income and capital markets and investment-related income were strong. On the fee income and other income side, of course, we had the Niaga NPL sale during this quarter, which was higher than last year. Also, in terms of the consumer Malaysia fee income, that picked up nicely this year, driven by wealth management and bank assurance fees. On OpEx, on slide eight, is lower Q-on-Q, and this is mainly due to the normalization of the high Q4 base due to the seasonal Q4 accruals. Also, we had some one-off in our restructuring costs in wholesale banking last quarter.
If you look at it from a year-on-year basis, like what Dato' mentioned, we are experiencing, similar to other banks, the inflationary pressure. This is mainly coming from personnel costs. This is a reflection of our accruals on the potential new collective agreement negotiations and also reflecting the full headcount buildup that we did in 2023, impacting the first quarter this year. In addition to that, also, given that Singapore's robust revenue and volume growth, we are also experiencing personnel cost pressure in Singapore. Technology, that continues to be a driver growing in that low teens of level. Marketing at that also higher level due mainly to the variable cost related to the Philippines, and also picking up our marketing spend in Malaysia.
Despite this inflationary cost, because of our very strong top-line growth, you can see our cost-to-income ratio improving to 45.3% versus last year in the same quarter of 46.99%. Moving on to provisions on slide nine. In terms of our credit cost here for this quarter, it's at 35 basis points versus the last quarter of 31 basis points. So still sustaining that relatively normalized levels of credit cost.
Within the breakdown, our recoveries is lower this quarter, and that's mainly due to a significant recovery last quarter in the Malaysian aviation sector. On the non-retail side, that has also come down, and that's mainly due to lower corporate provisioning in Indonesia and Singapore. On the retail side, the current quarter is more of the normalized level. Last year, first quarter, we recorded some overlay write-back and also lower underlying Indonesia consumer.
On a Q-on-Q basis, we had some model adjustment in the fourth quarter, and this is due to us reflecting the improvement in terms of our cure rates. On asset quality ratios on Slide 12, we can see our credit costs are trending nicely. Similarly, in terms of our gross impaired loans ratio, we do expect, going forward in the coming quarters, to continue with this gradual improvement in terms of our GIL. Our allowance coverage, like I mentioned, has now crossed 100%. We are looking to maintain this sort of 90%-100% loan loss coverage levels. On Slide 11, on gross loans, the momentum still remains good. The main driver on a Q-on-Q basis is on the consumer banking side and also commercial banking.
You can see, however, on the wholesale banking side, that contracted by 90 basis points Q-on-Q, and that is a reflection of our selective pricing strategy to ensure that our yields are maintained, and this is mainly coming from Indonesia and also Malaysia. On a year-on-year basis, good growth across the board, in particular, consumer banking in Thailand and Singapore. On the commercial banking, that's mainly driven by Malaysia. Breaking it down by country, the Malaysia growth is mainly driven by consumer and commercial. In Thailand and Indonesia, both are driven mainly by consumer, whereas in Singapore, the main driver is on the non-retail side. Moving on to slide 12 on deposits. If you look at the breakdown, you can see that our deposit-led strategy also includes growing our FD, in particular in Singapore and also Indonesia.
Our CASA has grown very well at 90 basis points, and this is mainly driven by Indonesia and Thailand, and also Malaysia consumer, where the growth has been good at 4.2% on a quarter-over-quarter basis. That also has contributed to the strong growth in Malaysia at 10.4% year-on-year, where the non-retail is growing higher than that level, whereas in consumer, still growing very well on a year-on-year basis in Malaysia at 7%.
In Thailand, the main driver is on the retail segment, whereas in Singapore, it is really across all three segments. Because of the high fixed deposit growth, our CASA ratio is slightly down, but still relatively at a good, healthy level of 40.8%. Moving on to slide 13. If you look at our capital ratio, that is trending well, and that is mainly driven by the good profitability trajectory during the quarter.
Also contributing to that is favorable FVOCI movement and low RWA consumption during the quarter. Slide 14, going into the performance by segment. Firstly, on consumer, the slight contraction on a Q-on-Q basis. You can see despite the very good growth in terms of our top line, that is offset by the higher provisions due to the fourth quarter having that model adjustment on the improved cure rate.
On a year-on-year basis, similarly, we have a very robust operating income growth, but this is offset by the higher ECL due to the overlay write-back that we recorded last year, and also the underlying in Indonesia being slightly lower last year. Overall, in terms of our loan growth, like I mentioned, that is mainly driven by Thailand and Indonesia, whereas in Malaysia that was growing below that level at about 6%. Commercial banking on slide 15.
In terms of the growth of the PBT, it is mainly driven by the ECL write-back that we recorded during the first quarter of this year. I think it is good to highlight as well in terms of NII, the good growth on a year-on-year basis is really driven by very good CASA growth in commercial banking. The driver in terms of our balance sheet growth, is mainly coming from Malaysia and Singapore. Wholesale banking on slide 16. The very good growth in terms of PBT, you can see the non-interest income growing significantly at 30.8% quarter-over-quarter, and also on a year-on-year basis, at 43.3%. This is really driven by the very strong capital markets and investment related. If you look at the wholesale banking growth, very good on a year-on-year basis.
That is mainly driven in Singapore, whereas in Malaysia, the growth is slightly weaker because of our strategy on being selective. Malaysia is growing at 2% year-on-year. On CDA and group funding on slide 17. Good growth on the bottom line Q-on-Q are mainly driven by NII. The contraction on the NOI is really driven by the one-off gain that we recorded in the fourth quarter, given the completion of CGS. On a year-on-year basis, very good growth driven by robust top-line growth. This is, however, partially offset by the higher ECL. If you look at some of the indicators on CDA, good trajectory on Touch 'n Go Digital, on the total registered users, and also annual transacting users.
Similarly, in Philippines as well, the deposit balance and number of customers is also projecting well with our number of customers now reaching 7.8 million in Philippines. As highlighted during the CDA Investor Day, we are providing more information on our CDA business, and going forward, we will continue to enhance this disclosure to provide more color on this business. You can see on slide 18 some of the additional disclosures that we are making. Firstly, if you look at the left-hand chart, this is something that we showed at the Investor Day, where we are trying to disclose what is the uplift to the Group ROE from the narrowing of the CDA losses. For this quarter, the narrowing of the CDA losses is contributing a 9 basis point expansion to the Group ROE.
Cumulatively, over the years, CDA has contributed to the 60 basis points ROE expansion. Drilling down to Philippines is really a very good exponential growth in terms of the revenue. You can see 2023, given the scaling up of that business, the strong revenue growth really contributed to the breaking even of Philippines in 2023. That positive trajectory continues in the first quarter. You can see recording a good level of MYR 168 million.
Lastly, on Islamic banking on slide 19. Moderate good growth in terms of PBT at 1.8% are driven by lower ECL. The strong growth on the year-on-year basis is driven by robust net financing income growth. If you look at the Islamic financing as well, continuing its good trajectory of 14.2%. That is the end of the financials. I pass the presentation back to Dato'. Thank you.
Thank you, Khairul. Let me start on, this is obviously our final year for our Forward23+ strategic plan. You are very familiar with the strategy. Slide 22. Good to report. I think we are trajecting very well, for what we set out four years ago. More importantly, in terms of shareholder value creation, obviously, we benefited from the market rally for CHCI. Very happy to note that, I think the recognition being given to CIMB, our annualized TSR for three months is close to 76%.
More importantly, I think from the day that I joined, we have been able to deliver now close to 43% annualized TSR per annum. Very happy that I think we have been able to create significant shareholder value, to all our investors. Next slide, in terms of asset composition, this one, I think we have completed all our portfolio reshaping.
Now it is just continuing the strategy, focusing on the consumer, on the SME business. That I think continues to also, we are nearly done in terms of our portfolio reshaping. In terms of digital reliability, continues to improve. Even though I think we take note of the incident that happened in Malaysia in April, that we believe effectively is really something that is third-party related. Very comfortable with our technology reliability. Our CapEx, I think we are disclosing, we have a target CapEx of about MYR 900 million. This year, if you recall last year, the budget was roughly about MYR 1 billion. We tend to spend roughly about 70% of the planned CapEx. This year, I think the first quarter has been low.
The main message I think we would like to say, we are probably at the, what we call tapering stage of our CapEx investments. We do expect our technology CapEx to taper off, following the, if you look at the trajectory for 2023, it is already off the peak. That decline or tapering will continue to actually happen in 2024. With that, if you look at our TSR journey, we have been reflecting back from 2019. As you know, we grew our ROE from 8.5% in 2019. If you exclude all the EI back then, we have been able to deliver in terms of the key Forward23+ initiative, and to where we are today, which is 11.4%.
The one thing I would like to highlight that, in terms of, there were dilution, we have been able to deliver this target despite the capital accumulation and the NIM compression. Just for your information, our first quarter 2024 ROE would have been 12.4% if our CET1 ratio remained at 13.5%. I think making us, probably number two in terms of total profitability.
In terms of where we are, I think this was a question a lot of you posed last year. What is our path towards hitting the target for Forward23+? Happy to report, I think we are now, in terms of the higher level, sorry, the 2024 target at the top end, which is 11.5%, we are only 10 basis points below. The real driver, I think we mentioned it to all of you, is really about the deposit-led strategy, really having a NIM recovery, NOI expansion.
Very happy that this seems to be coming through. Our NII, as mentioned just now, year-on-year, after a tough 2023, grew at 7.7%. I think that is going to be a big driver. We can maintain that part, then I think it will really contribute in terms of hitting our ROE target for 2024. Cost, obviously now we need to mitigate it. I think the inflationary pressure is there for all players. We are really going to embark upon another cost identification, what we call program. This is probably more towards, beyond Forward23+ strategy. For 2024, we just going to be very careful, in terms of managing our costs and the idea is really to try to see where we can cost optimize.
Obviously, I think the contribution, and probably a thing to expand, this year is probably a year about Malaysia, in theory, because if you look at the Malaysia results, it has improved and as well as Singapore. Obviously, Khairul mentioned about digital asset turnaround, carry costs as I say, remain muted. I think we are comfortable with that, and obviously provide us with our strong capital CET1 ratio, continued capital optimization plan. For sustainability, we continue to be a leader and shaper in this particular area. Particularly highlight that we published our sustainability report. We are already the top lead arranger for ESG bond. The CIMB operation Singapore already achieved net zero Scope 1 and Scope 2, in terms of emission. We are very happy with the progress that we are making.
I think in the next, probably Manasa will come up with further announcement relating to this area. Yeah. Final remarks, I think a very positive start for the year underscored by robust top line expansion, reflecting our deposit led and NIM recovery strategy. Good CASA growth reflecting that it is working in terms of our deposit and financing deposit and CASA franchise, as well as what we call contained provision.
A bit of a cautious outlook. We continue to be, I like to think cautious, particularly with the global economic headwind, the uncertain geopolitical tension. More importantly, I think most of you are aware the likelihood of prolonged elevated interest rate and competitive operating environment, particularly in Indonesia, whereby I think the bank, and not just us, but all banks is facing challenges to pass on the higher cost of deposit to the customer.
I think for Indonesia itself, I think we are slightly more cautious, particularly in terms of the NII line, because we do see NIM compression happening in that market. Notwithstanding that, I think barring unforeseen circumstances with the first quarter result, I think we are confident on meeting what we set out last quarter with 2024 target, particularly on the back of improved Malaysia and Singapore performance.
We remain focused on completing. We know that we can see the finishing line in terms of our Forward23+, we are focused in terms of completing that well, and continue our emphasis about strengthening our deposit and CASA franchise, our deposit-led NIM management strategy, driving NOI expansion, particularly coming from wholesale. We can really see some of the results in the first quarter, whereby our one client approach, I think, is bearing fruit, particularly in corporate banking performance.
We will continue to focus on digital and operational resilience. Before I end, I'd like to give a short update on our succession. As you know, I will be leaving CIMB on the 30th of June. We were hoping that we delay it. Part of the reason why we announced so late, I was hoping that we could announce our successor by today, that my successor can join this analyst briefing. Unfortunately, as I understand it, regulatory approval will probably take maybe in the next week or so. That will be announced. All I can say, obviously, we can't name the person yet, but it's a candidate for what we call a continuity of strategy, as well as continuing the focus on execution.
That, I believe, will continue to bode well for CIMB. I'd like to end, as you know, this is going to be my last analysts' briefing with all of you. It's a bittersweet moment. I've really enjoyed all our interaction, and really thank all of you guys for the support. I hope you've seen the work that we've done over the last four years, that in terms of focus, in terms of execution of strategy has worked, and I'm pretty sure, I'm very confident that my successor, as well as the leadership team that we actually have in CIMB, will continue and be able firstly, to complete Forward23+ well.
More importantly, I think they will share with you the plan for beyond Forward23+, and in terms of where, I think the next phase of growth of CIMB is going to be. Thank you very much. Happy to take your questions on this. I would thank all of you again at the end of our briefing today. Thank you.
Thank you, Dato' and Khairul. We can move now to the Q&A session. If you would like to ask a question, please use the raise hand function. We will unmute your line. Let's take the first question from Ben, from Macquarie. Ben?
Hi.
Hi.
Good evening, Dato'. Hope you can hear me clearly.
Yes.
First off, thanks a lot for the hard work that you've put in. It's been a pleasure working with you from this side of the business. I would like to ask a couple of questions, more so around loans growth, NIMs, and capital management. The first thing is that your slower loans growth makes sense as long as the NIM is still expanding, but there must be a ceiling to how much you can raise the NIMs, right? As you rightly pointed out, I think there's still a bit of cost pressure coming through. Just want to understand, what you think about the ceiling for your NIM expansion is, and what's sort of the minimum loans growth you kind of need to extract from the business.
I'll pass the detail to Khairul. Overall, if you think about what was industry NIM, before COVID to now, I think Malaysia, we are talking about Malaysia here rather than any other country, specifically Malaysia. I believe the industry have lost close to 20, 25 basis points. I can't quite understand why we should lose that as an industry, as I said, unless there is a reason behind it. When you ask the question, how much we can recover, and I'm not talking about just CIMB, I'm talking about the industry. I do believe that's the level, right? If we go back to 2019, we can recapture back as an industry, the NIM compression. I think for the industry, it's better. I think this depend on industrial dynamics, competitive, I call it action by everybody.
That's where I believe we should go back to, or at least the potential of going back to. Unless we believe that structurally, Malaysia NIM will come down or has come down, 10 basis points, 15 basis points on a finally a steady state. That's roughly where we see in terms of the, or at least I see in terms of the potential NIM ceiling that you refer about. There is a trade-off. I fully understand the part, as I mentioned to you, we took this decision a year ago or more than a year ago. To focus on yields rather than, I call it, volume. The good news, I think at least first quarter, the loan volume remains relatively strong in Malaysia. I think we still grew 5%, as Khairul indicated.
We do expect perhaps it will moderate down a bit, because part of the 5% obviously was stock that we built in the prior year. We trust our team. Our team, we believe that in terms of competing in the market, our sales team on the ground, particularly on the retail, remains very or what we believe is very strong in terms of best-in-class of this organization. On the wholesale side, we just need to be disciplined. I think we just will have to keep saying no if the deal doesn't make sense, I think we built in enough rigor that the idea is not to actually to compete, but what we call compete or drive more on NOII, drive more on the deposit, drive more on the CASA. Roughly that's where we are.
There will be a time whereby, if we revert back to what we call steady-state NIM, that we then need to actually to see where the growth is going to come from in terms of volume. This is what we think, believe the beauty about CIMB. Unlike a lot of other banks in Malaysia who are generally a one market player, CIMB has the benefit of, I call it, ASEAN strategy. 40% of our business is outside Malaysia.
If Malaysia effectively hits, we need a bit more volume growth, obviously, and there's a constraint towards that's where we believe our other markets, whether it's Singapore, Indonesia, Philippines, coming very, very strong, in terms of what we call revenue growth, will help to actually to then present ourselves effectively as what I call a balanced growth stock or balanced growth proposition. That's roughly how we think and build our strategy, and I think as you can see, and we believe there is still scope towards delivering value, I'll call it value, not necessarily just pure revenue growth towards this strategy.
Yeah. If I just may add, in terms of balancing the pricing and volume trade-off. Based on our current outlook and based on the current pricing dynamics in all the various countries, we are still confident. Despite us being very selective on the corporate side, we're still confident of hitting that loan growth target of between 5% to 7%. However, if the market starts to turn into something a bit more competitive than what it is today, like what Dato' mentioned, we are more than willing to walk away, and we are willing to sacrifice our loan growth target to ensure two things. One is in terms of ensuring that our ROIC for the particular deal is sustained, and it is not ROE dilutive going forward.
Thanks. It just caught my eye that your sequential loans growth is actually quite weak Q-on-Q. If you want to hit your 5% to 7% target, you're going to have to really pick things up, going forward, I suppose. Tying this back to capital, if you're at 15% CET1 right now, could we expect if your RWA consumption is not as aggressive, this is a good opportunity to increase your payouts more aggressively? How should we think about that trade-off?
Yeah. Firstly, in terms of the sequential loan growth. I guess, you're referring to overall in the fourth quarter, we grew at 2.1% Q-on-Q, and that momentum has come off to 30 basis points growth Q-on-Q. Partly because of our pricing strategy in wholesale banking, because the main driver of that moderation in momentum is mainly the contraction that we recorded on wholesale banking. That's really driven by two things. One, some of the lumpy repayments and some of the drawdowns that are impacting the Q-on-Q momentum. Secondly, as well, in the fourth quarter last year, we ramped up significantly in terms of the low-yielding loans in Niaga. That was really short-term loans coming off in January as well. Actually, there's three components to it.
One is our pricing strategy, one is the timing of the repayments and drawdowns, and thirdly, also of the seasonal pickup on loans in the fourth quarter in December in Indonesia, last year. In terms of linking it to our capital trajectory. First quarter was a very good number. With our confidence in hitting the loan growth target of between 5% to 7% by year end, there will be a pickup in terms of RWA consumption. Despite that, we are still very positive on our capital trajectory, and that does give us room to consider any one-off capital optimization. We'll continue to sustain in terms of our guidance of the BAU payout for 2024 on 55%. What we will consider, given a continuing positive trajectory on capital is really on the one-off.
Thanks. That's very helpful. I'll jump back in the queue. Thank you.
Thanks, Ben. Our next question comes from Peter Kong from CLSA. Peter?
Hi, Dato. Hi, Khairul. Just a couple of questions I would like to understand a bit more. Number one is on the CET1 improvement, which seems to be having some momentum. I also maybe just want to understand how much of the CET1 improvement is driven by the improvement from your impaired loan side. Compared to last year, it looks like your impaired loan has come off from the 3% levels, as Dato mentioned, to the 2% levels. Is this still a low-hanging fruit, as in whether if the GIL ratio continues to improve and you could have more write-offs, is this where your CET1 could also get some uplift? Correct me if I'm wrong. Yeah.
Yeah. A small driver there, but not a significant driver. The bigger drivers of the very good first quarter trajectory is really driven by the low RWA consumption during the quarter. That's number one, right? Number two, it's a very good profitable growth during the quarter of eleven point Lastly, we did have a bit, a small model related enhancement from our rating on the corporate side, which gave us some RWAs of benefit during the quarter.
I see. Okay. Thanks for that. I think my second question relating to this area is to Dato. Dato, I think in the earlier part of your presentation, you made a passing remark that it sounds like you are quite comfortable with the 15% CET1, and I think you said potentially able to allow CIMB to consider some Did you say capital optimization and subject to regulatory feedback and other factors? Would you be able to elaborate on what is on top of management's mind?
Yeah, I think it's consistent to what Khairul mentioned before and what we've been saying in the past, right? Again, I think we keep referring to in the pre-pandemic, I think Malaysia steady state, or at that point of time, the steady state capital, CET1 amongst bank was between 13%-14%. If you recall, CIMB was really close to at the low end of that 13%. Obviously, during the pandemic, it then moved up to this, 14%-15% mark, and we then moved towards that particular level. We are really at the high end of that 15% mark. Obviously, I think on our side, we are focused on that. We know that capital optimization is a big value driver to ROE.
If there are opportunities, as Khairul mentioned, we would like to see, or we would like to do effectively what we call capital optimization initiative, right? I think it's dependent on regulatory review, as well as what I think other players do, as well as, I think, the outlook on future things, which obviously, I think, we need to consider. As a principle, I think we've been very open and transparent in the past that if there are opportunities and the regulatory environment allows it, the capital optimization is an instrument that we would like to actually use to further improve ROE.
Thank you. My last question is in the area of how you're managing your asset growth. Quarter-on-quarter, the loans growth wasn't that strong, but actually, the treasury asset side did grow, in my calculation, about a high single digit . Just looking at your FVTPL and FVOCI. I was just wondering, is this somewhat tactical to position for potential gains, depending on the movement of the yield curve? Just wanted to understand the move in these areas.
Some of it is tactical due to that. Another driver as well, in some of our markets, there have been liquidity that we have garnered during the quarter. Some of the increase in some of those securities is related to giving us some uplift in terms of NII. Another component as well, markets has been, during the first quarter, we did have some mark-to-market gains as well to that balance sheet number growing. There's three components to that growth.
Particularly for the Singapore market, our drive to get CASA, get deposit, has been working extremely well. Effectively, you have that extra liquidity. If there's no, I call it, loan yields that basically make sense, I think that's where we actually deploy using securities. Generally, they're all short duration. We fully understand out of that, and we earn NII and basically make sense for us. That is what we think about. I think we are able to actually While we are fully focused on deposit-led strategy, the asset side of it, we look at it, that we should only do things when it makes sense. When it doesn't, that's where you actually deploy that excess liquidity, in terms of short-term securities and to make additional income.
Thanks for that. I'll jump back to the queue. Thanks for everything, Dato'.
Thanks, Peter. Our next question comes from Harsh Modi, from JP Morgan. Harsh, are you there?
Yeah. Hi. Thanks, Dato, for the call and many congratulations on a bigger role, and thanks again for very significant value creation. Rare to see a big large cap bank being turned around so well in a relatively short period of time. It shows in the TSR. Thanks again. I just had one question on Indonesia. There is significant tightness of liquidity in that market, both the stock and flow of liquidity. Margins have held up well this quarter, but Indonesia is a quarter of a balance sheet. In course of next three, six months, could we expect significant NIM compression at a group led by Indonesia? What are the various drivers of NIM, both on cost of funding materials in course of next few quarters? Thank you.
Yeah. For Indonesia, you are right, Harsh. Again, it's unique, right? Three years ago, the turnaround of our group was led by Niaga. Niaga had a very strong iconic performance. This year, Niaga, because of the industry, is facing what we call a NIM compression. It will be more challenging. You are right, effectively, a big part of it is that liquidity. Even though, I have to say, because of our focus on deposit, the cost of deposit increase in Niaga is tracking what we call the interest rate rise.
We are not facing what I call Malaysia situation two years ago or last year, whereby the cost of deposit there is spiking up. Even though the wholesale side we see, we have been able to moderate that by virtue of our, I call it deposit platform, CASA platform that remains strong, particularly on the commercial segment. I think this was an untapped market for Niaga. It was focused a lot on the corporate as well as our consumer side. As you know, we were descaling the commercial part. Since all of that has been done, the commercial side really been focused on the deposit gathering, CASA deployment, and we're getting very strong momentum.
On the cost of deposit side, we are relatively confident that we are able to track it similar to interest rate rise in Niaga. Bigger issue is really on the asset side, whereby the passing on, unlike Malaysia, whereby you have a unilateral, once OPR increase, we can pass it on to the customer. In Niaga, it is a customer by customer, what we call change. With that, particularly on the wholesale and the commercial side, it's been very challenging to pass on the asset yield increase.
That, I think is what's compressing margin and will compress margin on CIMB Niaga. Now, whether it will be significant to actually to dilute the NIM of the group, I think remains to be seen, but we are still optimistic that CIMB Niaga will have at least small NII growth, meaning the decline in the NIM will be offset by some increase in loan, and generally net, we are still NII positive in CIMB Niaga. That's what we are saying about, but it is one element that we need to look at in 2024.
Great. Thanks, Dato.
Thanks, Harsh. At the moment, we have no other further questions. Just a reminder, if you would like to ask a question, please use the raise hand function and we will unmute your line. Yes, our next question, we do have a question from Tushar from Nomura.
Hi. Thank you for taking my questions. My first question is on NOII outlook for the rest of the year. Could you give some color on what opportunities are you seeing, how the trends are likely to be?
I think there are three levers. On the fees and commission, it's basically retail. I think we are pretty positive because the investment, what we call demand, have returned compared to 2023. On the consumer side, it is positive. On the wholesale side, obviously, we had a very strong first quarter. We've been able to actually to transform and rejuvenate our investment bank and corporate bank franchise to be able to actually to do a number of what we call market landmark deals, particularly in Malaysia. That one, I think obviously now is opportunistic. We need to actually to see whether we can create that level, in effect, create a market for this NOII investment banking fees. Together with, obviously, as you know, we've brought in our equities business back into the fold. That will provide some additional NOII.
The, I call it the episodic income, coming from what we call investment/corporate banking, is something I think we need to actually to see whether you can deliver every quarter. I would believe probably second quarter will not be as strong as first quarter for this element. The third element, of course, is trading. Income trading, or what we call flow income, on the Treasury side. The flow income continues to actually be positive, to be strong, and that's our focus. That's been very good. First quarter started well, and we think that that momentum will continue. The trading side is a bit of a mix. It's still positive for the year. Countries like Indonesia and Thailand, was below last year, but Malaysia and Singapore offset that.
Generally, I think the first quarter, that trading part of the income, while it contributed to the strong NOI growth, was probably, I would call it, was balanced. If we are able to actually continue, I think we will be able to do so. Of course, as you know, trading income is highly opportunistic and depends on market. The last component of our NOI, as you know, is NPL sale, which over the last three years, we continue to create what we call recurring-like plan to crystallize all our NPL sale.
I think that's progressing relatively well. I think we are confident that we'll be able to maintain what we call the rate of NPL sale relative to last year. That will provide further continuity in terms of the NOI. The one that we a bit unsure is probably a bit of trading, as well as the episodic investment bank, corporate bank transaction. As I said, the fees and flow business momentum seems good, and we hope that will be able to continue for the rest of the year.
Thank you. Can I also ask on the capital optimization and the one-off factor which you are considering? Based on the discussion with regulators, is it possible to consider this for the interim dividend? That's when it will give you the reduction in equity base so that your ROE is higher.
We haven't started the discussion with the regulators because we haven't passed the second quarter mark. If our capital trajectory continues to be good and our positive net capital generation continues to be good, which is based on our outlook, we will start that conversation with the regulators.
Okay, basically, this can be considered if the results are in line with your expectations.
It depends. Like what Dato mentioned earlier, there is a lot of other elements that we are considering. It could be something that we look at in the second quarter, and those other elements are also very critical. In terms of the outlook of the economy from a macro perspective, the outlook of the regulators, and also in terms of the board as well. Second quarter is something that definitely we're going to look at as a timing, but it depends a lot on a lot of moving parts.
Okay. On the OpEx, previous guidance was, I think, slightly higher than mid-single digit OpEx. Earlier in the call, you also mentioned that tech spending investments have been slow in the first quarter. Is there any probability that you undershoot the OpEx growth guidance?
For the time being, I think we're maintaining the guidance, the reason is simple. A big part of that growth, if you look at all banks and not just us, is personal cost. A lot of it has been driven on decision on collective union bargaining, the recent payout in terms of the festival aid, and in terms of general, I call it cost, which effectively inflation. For the time being, I think we are working hard on it, please don't get us wrong, trying to actually optimize and control this further. A bigger part of that, what we call cost escalation, is driven by P cost, personal cost.
Okay. Maybe one final question. You mentioned that you are able to price or trying to price assets up higher, to protect NIM. Could you give us some color on the pricing environment in the retail side in Malaysia? Is it even possible to raise pricing there given the competitive intensity in the market?
I think it depends. Already, I think we are pricing slightly higher than our competitor. Obviously, I think we are keeping that differential. A big part of it depends on our competitor, what they will do. I don't think we can expand that differential. We are already, and there is none. If you were to apply loan, mortgage loan, particularly with ourselves, you would probably see that we have, I call it, a higher differential compared to our competitor. A big part of this, I think, will depend on them. We don't have plans to increase that differential. We want to maintain that differential. If they do increase their pricing, we are more than happy to actually follow suit.
Okay. Thank you, Dato. Once again, on behalf of analysts and investors, I would like to thank you for your leadership. Thank you.
Thank you.
Thanks, Tushar. We have one last question, I think the last maybe, from Yong Hong from Citi. Yong Hong, you there?
Hi, Steven. Can you hear me?
Yep.
Hi.
Yes, we do. We can.
Okay, thank you. All the best, Dato, in the next quest. I just have one questions. Regarding on your capital management and on your Basel reforms, how are you weighing these? If there's any initial assessment impact that you can share?
Sorry, Yong Hong, we can't quite hear what you just said.
I think if I catch your question accurately, right, in terms of our assessment of capital, we go through a very rigorous process every time, and that includes looking at the stress testing that we do and see whether our threshold is met, mainly. Secondly, is looking at the outlook on the macroeconomic uncertainties. Thirdly, in terms of where our peers are at, right? Of course, all of that includes also our forecast and trajectory of RWA consumption. This is then, of course, deliberated very heavily at management, at board level. Any capital decisions, whether is it the BAU payout or reviewing any opportunity for any one-off sort of capital optimization, will go through this rigorous process before going through another rigorous process with the central bank.
Okay.
Hope that answers your question. Yeah.
Can you hear me clearer now? Sorry, I'm outdoor. Sorry. Can you hear me clearer?
Yes.
Yeah. Actually, I'm referring to the Basel reforms impact from the operational RWA next year and from the 2027 credit RWA.
Okay.
Any initial numbers you can share.
I think that's why it's very important, right, in terms of our BAU payout and our dividend policy. If you look at our dividend policy, it's 40%-60%, right? Our 2024 guidance is very clear that on a BAU basis, we are looking at 55% payout. Going forward, what you mentioned is definitely a consideration, right? Despite the fact that the implementation of that is in 2027, when we look at our sustainable dividend policy, that will definitely something that will be taken into consideration together with our new Beyond24 strategy, and also some of the growth or requirements locally at all our subsidiaries. Those are the three or four things that we are definitely going to look at for the 2025 and going forward.
Okay. Because I think one of the peers guiding that in the next year, there could be 70-80 basis point impact from the Basel reforms. Just wanting to confirm that you don't see anything else here.
Yeah. We've done the impact analysis, right? There is some small negative impact to CET1 coming through from that. Right. That has to be looked in conjunction with our growth trajectory and local capital requirements as well. It'll be looked at holistically, together with our Beyond24 strategy.
We'll do further analysis, but we also feel that our impact, of course, will be impacted on the Basel implementation. We sense that our impact to our capital is probably less than some of our peers, simply because historically, CIMB has always had higher RWA density.
Okay. With these kind of consideration in mind, and I think we are still looking where loans use are turning towards, would it make sense to maybe review the dividends payout or any one-off distribution towards the end of the year rather than in the upcoming first half results?
We normally give our guidance, right, at the beginning of the financial year. It will be in conjunction holistically, right, with our new Beyond 24 strategy. Of course, capital management has to be looked at holistically together with our underlying Beyond24 strategy.
Okay, got it. Thank you.
Thanks, Yong Hong. Dato, we have one last question from Zhix uan from Schoenfeld in Singapore. Zhi xuan?
Hey, Dato, Ho. Thanks so much for the opportunity. Just want to get your thoughts on the margins outlook for the next one to two quarters. Number one is, if I look at the margin excluding PMM, it actually rebound up pretty nicely this quarter. How should we think about that going forward? Should we see completely rebound or it's more like one quarter to one? Number two is, it seems that the total margin is dragged by funding for trading this quarter. Does it mean that if trading income is not that strong in the next one to two quarters, that drag, that we see this quarter earnings come down, thus helping our overall group margins? Is that the right way to think about it?
Let me just take that margin question on a sequential basis. Overall, I think for the year, right, for the year-on-year, on a year-on-year basis, at the group level, we are looking at stable to a margin expansion of five basis points. Sequentially, right, you did see our NIM expanding by three basis points on the quarter. Going forward in the next quarter, sequentially, we expect it to be stable to maybe potentially a slight margin expansion, right?
The slight margin expansion is mainly driven by Malaysia. We have some visibility on a further improvement in terms of cost of funding. I guess where the bigger question mark will come from on whether we get a decent margin expansion in the second quarter is back to Dato' earlier explanation, is really coming through from Indonesia and to a lesser extent, Thailand as well.
Got it. Thank you so much.
I didn't get your second question.
I think your second question is that why the total group NIM is lower than the NIM banking book. That's just because of the trade that I think everybody is doing in terms of TNM, whereby they borrow FX and then swap it, so you're negative in terms of NII but make money on the NOI. That part of it. The other part of it, that bond buying business obviously generates effectively much lower NIM, compared to effectively the banking book NIM.
Also, the fact that in the first quarter, we did a bit more swap funding versus the fourth quarter. The NIM compression on the TNM side.
I think it's very similar. I think the Singaporean bank started to show the NIM banking book because precisely of that. That's why I think we are emulating that. That, I think that clarity in terms of the NIM banking book which is not, I call it, influenced by what's happening on the treasury and market side.
Got it. That's very helpful. Thank you so much.
Thanks, Zhixuan.
I think that brings us to the end of the questions. Dato', I'll just pass this line back to you.
I'd just like to end. Thank you very much. I think some of you really said very nice words about me. Thank you very much. I have to say, as I said, the progress or what we have delivered over the last four years has been really a team effort. I mean, the GEXCO, the senior leadership team is really on board, the board guidance, and more importantly, I think the real effort by the, I would call it, our team, our CIMB talent, really helped through in terms of executing it. The good news, I think we have belief that we have institutionalized what we call the focus in execution. I think that is something that I'm very confident will continue. I'm very, very pleased with, and I'm really hopeful that I think we will continue this trajectory and end 2024 well.
I look forward, just like you, to the Beyond24 plans that my successor as well, the senior management team and board will develop. I'm very confident, regardless what the plan, it will be very positive to CIMB. I'd like to thank all of you for all your kind support, and advice, and questions, and which we, as you know, we take very, very seriously, and always enjoyed that interactions that we have. Thank you very much everybody, and hope our next interaction probably will be on a different role. I look forward to continue to stay in touch with all of you. Thank you.
Thank you, ladies and gentlemen. That concludes our briefing for today. Thanks for joining us. I wish you a very good evening and a good long weekend ahead. Thank you.