CIMB braces for challenging times ahead

KUALA LUMPUR: Malaysia’s second largest lender CIMB, which suffered a 21% share drop the past year compared with a 6% decline in the local stock market, is set for challenging times ahead, according to a report by Bloomberg News. CIMB shares dropped 2.5% on Thursday alone.

The bank had a 7.9% Return on Equity (RoE) in March. Corporate and investment banking made up 38% of CIMB’s pretax income last year, followed by commercial banking at 17%, according to data compiled by Bloomberg.

Already, the Group had to lay off 16 investment bankers this week in South Korea, Taiwan and India and 12 support staff at its broking business in Singapore this month. It has closed an office in Australia besides letting employees go in Malaysia, Indonesia, and Hong Kong as well. Further layoffs may take place in Indonesia where CIMB wants to exit microfinance which employs 1,000 people.

Cuts are expected to take place in Thailand as well as the bank wants to focus on wealth management in that country. Investment banking operations are under review in all geographical locations where the bank is present.

“We are reviewing as we go on,” said Chief Executive Officer Tengku Zafrul Abdul Aziz, 42, in an interview on Tuesday on the targeted 15% RoE by the end of 2018. “Towards the end of the year, we have to look at how far we are with the achievements at the year end. Two years from 2018, if it’s too far, then we will have to adjust.”

He added there will be a headcount reduction for sure, if the group continues to restructure. “In areas where we feel that it’s not making enough returns, we have to make the tough decisions. There will be also headcount increase in some other areas where we want to focus.”

CIMB is down to 45,000 employees after laying off 10% last year in a cost-cutting programme.

The programme began after CIMB dropped the idea of a three-way merger with RHB Capital Bhd and Malaysia Building Society Bhd, both domestic competitors.

There have been unexpectedly high levels of bad-debt provisions in Indonesia in recent quarters, capital markets are not expected to go anywhere in the next six month, and consumer loan growth is declining as the economic downturn continues. There was too much focus in Indonesia, which makes up 20% of CIMB loans, on terms loans and commodities. The new focus is on bigger companies and multinationals.

On a brighter note, the bank would add 50 people in Vietnam this year, at branches in Hanoi and Ho Chi Minh City, and has applied for a banking licence in the Philippines.