August 28, 2017 / 8:27 AM / a year ago

UPDATE 1-CIMB Q2 profit crushes consensus, says on track to hit loan growth target

* Net profit 1.1 bln ringgit vs analysts’ 686 mln ringgit estimate

* Revenue up 10 percent; net interest income up 14.2 percent

* Confident of achieving 6-7 percent 2017 loan growth target

* Expects full-year net interest margin to be flat (Adds company comments, further earnings details, context)

By Liz Lee

KUALA LUMPUR, Aug 28 (Reuters) - CIMB Group Holdings Bhd turned in its second-best quarter in four years, blowing past a consensus estimate, and said it was confident of reaching an annual loan growth target given strength across its banking segments and a firm economy.

The economy of the world’s No.2 palm producer is picking up, after a period of tepid growth caused by a downturn in commodity prices and a corruption scandal involving state-owned fund 1Malaysia Development Berhad. That is benefiting Malaysia’s No.2 lender by assets, CIMB, and its bigger rival Malayan Banking Bhd , which will report results on Wednesday.

CIMB said it was “cautiously optimistic” for the second half of 2017 on strong GDP growth for Malaysia and Indonesia, and expected gradual improvement in Singapore and Thailand - all of which signal increased regional activity and improved markets.

“We expect loan growth for Malaysia to be a high single digit, and CIMB will track that growth,” group CEO Zafrul Aziz said at a briefing, adding the lender was confident of achieving a loan growth target of about 6-7 percent for this year. Its gross loans grew 8.2 percent in the first half from a year ago.

For the second quarter, CIMB raked in a net profit of 1.1 billion ringgit ($234 million), versus 872.8 million ringgit a year ago. This was the second highest since early 2013 and also better than an average estimate of 685.70 million ringgit from six analysts polled by Thomson Reuters.

CIMB’s revenue for the quarter rose to 4.3 billion ringgit from 3.9 billion ringgit, while its net interest income rose 14.2 percent on loan growth and improved net interest margin. The bank expects its full-year net interest margin to be flat.

Lingering exposure to loans in the oil and gas (O&G) sector will not have any material impact on the group, as the sector only accounts for 2.5 percent of the group’s loans, Zafrul said.

“Exposure to (O&G in) Singapore over the last 12-18 months has been decreasing significantly. But the O&G industry is not out of the woods yet in Singapore. There are still some challenges in terms of exposure to the weaknesses in O&G,” CFO Shahnaz Jammal said at the briefing on Monday.

Malaysia’s major banks were hit by loan-loss provisioning and impairments related to the O&G sector last year, including from their exposure to the now bankrupt Swiber Holdings Ltd.

On loans overtaking deposit growth, CIMB said it was not a concern as the group’s loan-to-deposit ratio had improved.

“If you look at the liquidity coverage ratio for Malaysia banking system as a whole, it is quite comfortable around 140 percent, and CIMB is around there,” Shahnaz said.

“From the liquidity and funding perspective, we and other banks are comfortable.”

Hong Leong Investment Bank Research analyst Khairul Azizi Kairudin said in a note earlier this month that with a more stable macro environment, banks could see their 2017 earnings recover by 15 percent, helped by the lower base effect from provisioning in 2016.

CIMB’s shares were down 0.30 percent at midday trading break, before the lender reported earnings, versus a 0.11 percent rise in the benchmark index. (Reporting by Liz Lee; Editing by Himani Sarkar)

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