CIMB Niaga's Q1 net profit surges 138% to US$48m

The bank is expected to contribute 18% of CIMB Group’s FY17 earnings.

According to Maybank Kim Eng, whilst the operating environment remains challenging amid slow loan growth and cautiousness over potential defaults, what is positive is that there are signs of some stabilisation in Niaga’s asset quality ratios, which should lend to a gradual reduction in credit cost over time.

“We maintain our forecasts for now, expecting Niaga to contribute 18% of CIMB Group’s FY17 earnings.”

Here’s more from Maybank Kim Eng:

Niaga’s 1Q17 core net profit of IDR640b (US$48m) (+138% YoY, +11% QoQ) was above expectations at 27% of our full-year forecast, predominantly on better-than-expected NIM. Our forecasts are nevertheless maintained on expectations that NIM will continue to compress in the following quarters and that credit costs would remain elevated.

While loans contracted 2% QoQ due to several large repayments particularly of restructured loans, NIM held up well, contracting just 20bps QoQ. The bank continued to report positive JAWS and asset quality improved, leading to a lower, albeit still elevated, credit cost of 231 bps in 1Q17 versus 263bps in 4Q16.

The bank’s gross impaired loan ratio improved to 5.07% end-Mar 2017 from 5.24% end-Dec 2016. Credit cost, as such, came in lower at 2.31% in 1Q17 versus 2.63% in 4Q16, while loan loss coverage was stable at 118%.

Management, however, remains cautious, given that its NPL ratio ticked higher to 3.91% from 3.89% end-Dec 2016, led by higher NPLs in the consumer and SME segments. Our forecasts assume a modest reduction in credit cost during the year, and impute an average credit cost of 225 bps for FY17.