The turnaround in CIMB Singapore comes following a shift in the bank’s business towards segments that yield higher returns.
PETALING JAYA: The valuation of CIMB Group
Holdings Bhd may get a boost from its Singapore operations that have made a significant turnaround after having impaired oil and gas as well as marine sector loans in 2020.
With just one branch, CIMB Singapore contributed to about 15% to CIMB Group’s first half year (1H24) pre-tax profit, 10% of group loans and 14% of total group deposits.
It is envisaged that the bank will contribute to a stable 10% to 12% of group earnings over the long term, according to Maybank Investment Bank (MaybankIB) Research.
“CIMB Singapore’s financial ratios are looking much healthier than they were back in financial year 2020 (FY20). Margins have improved significantly and the bank’s balance sheet is highly liquid with a loan to deposit ratio of just 67.8%.
“Efficiencies have stepped up with a lower cost to income ratio of just 43% and asset quality is now stronger with a gross impaired loan ratio of 0.8%, with more than adequate coverage (loan loss coverage of 159%),” the research house highlighted in a report on CIMB Group following an investor-day event.
The turnaround in CIMB Singapore comes following a shift in the bank’s business towards segments that yield higher returns such as commercial banking and growing its treasury division, as well as private wealth management.
CIMB Singapore is also less focused on lower-margin consumer banking products such as mortgage (15% of loans) albeit being better in asset quality.
“These segments offer better risk adjusted return on capital and have helped support net interest margins.
“To mitigate credit risk, the small and medium enterprise (SME) book is well secured by collateral and government guarantees.
“CIMB Group has also derisked its loan book by exiting structured trade and commodity finance, and reduced its oil and gas and commodity trading exposures,” RHB Research added.
The room to grow in Singapore is significant. The island republic has about 310,000 SMEs, and CIMB Singapore has just about 2.4% market share in terms of the number of customers and about 1% market share of SME loans, according to research houses.
Bancassurance is another driver the bank can tap into.
“The growth in its banca business is part of its wealth management strategy and as it stands, its market share has since expanded from just 2.2% for (FY20) to 6% in 1H24, in terms of life insurance weighted premiums,” MaybankIB Research noted.
The research house said another plus for the Singapore business is the 1.13 million Malaysians working in Singapore.
The number of Malaysian customers with CIMB Singapore has expanded from 68,000 in FY20 to 215,000 in 1H24.
“With increased cooperation and growth along the Singapore-Malaysia corridor, CIMB Singapore is well-poised to further expand its market share,” MaybankIB Research added.
