"A larger presence for CIMB in Indonesia will translate into a larger platform for CIMB to grow its digital business in South-East Asia’s largest economy,” said veteran banker Yoong.
KUALA LUMPUR: PT Bank Commonwealth will be a good fit for CIMB Group
Holdings Bhd should it succeed in acquiring the Indonesian bank.
This appears to be so amid pressured net interest margins (NIMs) at CIMB’s Indonesian subsidiary based on its latest third-quarter financial report card and a rather crowded space in the Indonesian banking sector.
If the acquisition by CIMB materialises, it will most likely be done through its 92.5%-owned Indonesian subsidiary PT Bank CIMB Niaga Tbk, said analysts.
Reuters reported on Tuesday of CIMB and Japanese finance company J Trust being among companies that have expressed interest to buy PT Bank Commonwealth in a deal that could value the lender at US$400mil to US$500mil.
Australia’s biggest lender Commonwealth Bank of Australia (CBA) owns 99% of PT Bank Commonwealth, while the CIMB Group is Malaysia’s second biggest bank at home and CIMB Niaga Tbk is Indonesia’s sixth largest bank by asset size.
Analysts noted that interest margins for CIMB Niaga continues to be pressured due to intensifying fixed deposit competition which could be seen in its recently reported third-quarter earnings report.
Former senior investment banker and high net worth investor Ian Yoong said the acquisition would be a sensible fit for CIMB Niaga.“PT Bank Commonwealth’s business focus is retail lending and lending to small medium-sized enterprises.
“Also notably, CIMB Niaga focuses on both these market segments and has performed well. A larger presence for CIMB in Indonesia will translate into a larger platform for CIMB to grow its digital business in South-East Asia’s largest economy,” Yoong told StarBiz.
Notably, Yoong also points out that PT Bank Commonwealth is a relatively small bank when compared to CIMB Niaga.
PT Bank Commonwealth has assets of 18.3 trillion rupiah (RM3.8bil) and it reported a bigger loss of 350 billion rupiah (RM105mil) in the financial year 2022 (FY22) compared with FY21, he noted.
“In my view, it is likely that CIMB Niaga will be the vehicle used for the potential acquisition of PT Bank Commonwealth.
“It is also highly likely that PT Bank Commonwealth is viewed as a failed experiment to tap the most populous country in South-East Asia. Alas it is time, after 26 years, for CBA to throw in the towel in Indonesia,” Yoong said.
Meanwhile, Tradeview Capital Sdn Bhd’s portfolio manager Ng Tzyy Loon said the overall impact in the bigger picture to the CIMB Group’s financials would be limited if the acquisition becomes reality as its size is much bigger compared with PT Bank Commonwealth.
“By acquiring a bank with higher financial ratios, it should able to lift up the acquirer’s overall financials, theoretically. However, it’s important to note that PT Bank Commonwealth is still relatively small, compared to both the CIMB Group and CIMB Niaga,” Ng told StarBiz.
In its 2022 filing, Ng points out the CIMB Group reported a Common Equity Tier-1 Ratio (CETR) of 14.5% while PT Bank Commonwealth recorded a CETR of 30.8%, which is significantly higher than CIMB as a whole.In terms of asset size, he notes CIMB Niaga’s total assets of US$21.3bil as of the most recent third quarter eclipses the asset size at PT Bank Commonwealth as the latter is a smaller bank.
PT Bank Commonwealth has 30 branches and 30 kiosks in the major cities across Indonesia compared with CIMB Niaga’s operation which has 417 branches as of 2022. Ng notes that due to the huge difference between CIMB Niaga’s operations and PT Bank Commonwealth, it would be hard to tell at the moment of any benefits to CIMB Niaga or otherwise.
“Furthermore, if the reported valuation range of US$400mil to US$500mil is accurate, then the acquirer (be it CIMB or others) would be paying a premium of 1.5 times to 1.9 times for PT Bank Commonwealth’s book value. In contrast, CIMB is now valued at 0.9 times its book value, both at the group-level and for its Indonesia operation,” he said.
Ng said it is most likely CBA wants to sell off its stakes because PT Bank Commonwealth isn’t profitable.
“What we observed was PT Bank Commonwealth’s loan book in the segment of trading, restaurant, and hotels, has declined 23%, contributing to a 4% drop of its overall loan book in 2022. On the other hand, its rising operating expenditures are making things tougher for the Australian bank,” Ng said.
“To CBA, income from its overseas operations (including Hong Kong and Singapore) is less than 5% of the group’s income. In light of these challenges, an exit appears to be more reasonable compared to staying on,” he added.
AmBank Research in its report on Monday noted CIMB Niaga recorded a marginally higher core net profit of 1.67 trillion rupiah which is a 1% gain from its previous consecutive quarter.
CIMB Niaga’s stronger earnings were driven by lower operating expenses and provisions and these were adequate enough to offset weaker net interest income and lower non-interest income from declines in treasury income and loan recoveries in the quarter.
