NIMs, a key measure of bank profitability, is the difference between what banks earn from loans and what they pay out as interest to depositors. (source)
Indonesia, currently in a rising interest rate environment, on February 4 raised its benchmark interest rate by 25 basis points (bps) to 6.75 per cent.
The cap on fixed-deposit was also raised by the same quantum to 7.25 per cent.
Its central bank, however, has encouraged all top banks there to maintain their lending and deposit rates for now, CIMB Niaga's management told analysts last week after releasing its 2010 financial results.
CIMB Niaga is 98 per cent-owned by CIMB Group Holdings Bhd (1023), Malaysia's second largest banking group.
"In the event that deposit rates are increased, CIMB Niaga foresees a six-month compression impact to NIM, as deposit rates will have to be re-priced upwards immediately, while lending rates are re-priced every quarter," AmResearch said in a report last Friday.
CIMB Niaga has guided for a NIM contraction of 25 bps this year, which analysts think is still commendable.
The bank's net profit last year grew by 62.5 per cent to 2,548 billion rupiah (RM874 million), surpassing analysts' expectations.
Its NIM in the final quarter fell slightly to 6.5 per cent from 6.6 per cent in the previous quarter, but still managed to outperform the industry average of 5.7 per cent.
AmResearch estimated that if all deposit rates were to be re-priced upwards by 25bps, it would cut CIMB Niaga's net earnings this year by 10.5 per cent. This would have a "minimal" impact on its parent CIMB Group, it said.
Additionally, CIMB Niaga's focus on product innovation and lending to higher-yielding sectors such auto loans and credit cards can help counter the pressure on its NIM. These make up 13.3 per cent and 2 per cent of its overall loans, respectively.
Bank Internasional Indonesia (BII), owned by Malaysia's Malayan Banking Bhd (Maybank), also appears to be bucking the NIM trend.
The strength of its deposit growth and its focus on higher-margin motorcycle financing has helped shore up NIMs at 6.05 per cent despite the competitive environment, OSK Research noted.
The research house believes both CIMB Niaga and BII will comfortably meet their respective loan growth targets of between 15 per cent and 20 per cent this year.
It maintained "buy" calls on their parent companies, with a target of RM9.77 on CIMB Group and RM10.07 on Maybank. Maybank last traded at RM8.59.
Source : http://www.btimes.com.my/articles/bakin/Article/ Feb 21, 2011
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