Going for growth

AFTER an eventful 16 months at the helm of Malaysia’s second-largest lender, CIMB Group Holdings Bhd group chief executive officer (CEO) Datuk Abdul Rahman Ahmad shows no signs of slowing down.

He knows he cannot afford to, as there’s still plenty to be done.


He’s also been putting in the hours reading up on all things banking in order to make up for his lack of experience in the banking sphere.

“I don’t think I’m qualified to be a banker yet. I still think of myself as a non-banker trying to perform a role in banking,” he tells StarBizWeek in an exclusive virtual interview.

The 52-year-old former CEO of Permodalan Nasional Bhd is no stranger to Malaysia’s corporate scene.

But this is his first ever role within the banking sector. And his biggest litmus test for now?

The banking group’s Forward23+ strategy in which it aims to be “the leading focused Asean bank”.


The strategy, which started from financial year ended Dec 31, 2020 (FY20) and will run until FY24 is a recalibration of the lender’s earlier Forward23 strategy which did not take into account Covid-19 disruptions.

Notably, CIMB, which counts Malaysia’s strategic investment arm Khazanah Nasional Bhd as its single largest shareholder, reported results that pleased the market in the first half of its FY21 after a dismal FY20, no thanks to Covid-19.

Its stock rose as a result of its recent financial performance.

But the second half of FY21 is expected to yield a weaker showing due to the resurgence of Covid-19 cases. Provisions, which have to be set aside for doubtful debts, are expected to remain elevated.

“CIMB is still very much a work-in-progress,” Abdul Rahman says matter-of-factly. “Progress has been positive, but this is only the first year in a four-year journey that we have to go through.”

Since coming onboard last May, Abdul Rahman has achieved some of the main things he set out to do in the beginning, chief among which was to cut cost by RM500mil in FY20.

To be sure, CIMB’s cost, as measured by the cost-to-income (CIR) ratio, has almost always been a thorn in its flesh, averaging historically between 53% and 55%, higher than its closest banking peers like Malayan Banking Bhd and Public Bank Bhd which generally chalk CIRs of below 50%.

The plan now is to cut another RM300mil to RM500mil in the next couple of years.

“My own experience has always been that we can plan but there will be black swan events, things that you are not able to predict, so I think it’s too early to say that everything is going well.

“There is still a lot of work to be done and we need to build that resilience so that if that black swan event actually happens, we are able to absorb it better and use it as an opportunity rather than grappling with the issue,” he adds.

For now, the bank has set out some clear targets, but suffice to say the overall strategy is to continue optimising costs, focus on growing several key areas as well as investing in technology.

“When we developed our strategy Forward23+, the plan was very clear. There are a number of themes but the main theme is really to deliver what we call sustainable financial returns,” Abdul Rahman says.

Enhancing operations: A customer being attended to at a CIMB branch in the Klang Valley. Technology cost at the bank is expected to be in double-digits of total cost over the next four years.Enhancing operations: A customer being attended to at a CIMB branch in the Klang Valley. Technology cost at the bank is expected to be in double-digits of total cost over the next four years.

Doubling down

Up to now, what has already been completed under its business plan is the reshaping part of the lender’s portfolio, he says.

“That means fixing or exiting some of the businesses that we do not have a competitive advantage in, we have done that, we have exited the commercial business in Thailand and the commodity financing business in Singapore that caused us some of our legacy problems in 2020,” he says.

The second part is identifying some of its business segments that need to be fixed.

“For example, the commercial banking business in Indonesia. We need to improve the underlying business so that the provisions that we incur there are not excessive.”

Next, he says the bank is “very, very clear” on the areas that it wants to double down on and invest in.

“And these are areas that CIMB has traditionally been very strong in, and where the opportunities are very significant.”

Such areas cover its wholesale business (mainly investment banking, corporate banking, treasury and markets), transaction banking, commercial banking and consumer banking, particularly wealth management.

“Our position as a regional bank allows us to facilitate intra-Asean trade transactions, really growing our transaction and commercial banking particularly in Malaysia where historically we have been relatively small so there is a significant opportunity to grow.”

Within consumer banking, as societies and economies become more affluent across Asean, the growth will be significant, so the bank wants to double down on the consumer banking business, especially the wealth management business.

CIMB has always had a strong position within this segment, according to Abdul Rahman, especially with regards to its Preferred and Private Banking.

“So basically, it’s wholesale and consumer banking, particularly wealth management across Asean and transaction and commercial banking in Malaysia. These are the areas that we really want to grow,” Abdul Rahman says.

“At the same time, we must also not forget what we call the digital bank and the first part of this is how can we transform CIMB into a more digitised operation.”

This, according to him, involves not only providing a more digitised journey for customers, but also digitising the group’s back office so that it can run and operate the business in a more effective manner.

The second part of its digital journey involves investments.

“We have invested big into Touch ‘n Go Digital (TNG Digital), which is doing extremely well with transaction payment values hitting RM4bil for the one-year period ended June 30.”

E-wallet operator TNG Digital was jointly formed by CIMB’s wholly-owned subsidiary Touch ‘n Go and the Ant Group from China back in 2017.

“Our digital investments that we have in the Philippines have also been extremely positive. We have already gotten close to four million depositors, as well as deposits of RM1.1bil.”

Next Gen Clicks

Needless to say, technology cost at CIMB is expected to be in double-digits of total cost over the next four years, as the lender continues to improve and enhance the stability of its technology-related operations.

“We don’t want to under-invest so we expect our technology cost to be in double-digits.

“We will also be investing in what we call the next generation (Next Gen) Clicks, as well as in our current transaction banking platform.

“This is something that we will share with the market a bit later, as we are in the midst of developing the Next Gen Clicks, where with it, we will be able to have a completely separate platform.”

Abdul Rahman stresses that the investment into this New Gen platform is not to improve its current online banking platform Clicks.

“It’s really a roll-out of a completely new platform, whereby it will be more (about) micro services and more application programming interface-based, compared to our current Clicks where the infrastructure is much more of a legacy infrastructure.

“The idea is to have two Clicks, if one is down, we have a backup.”

The plan is to roll this out by the first quarter of next year.

He says this is part of the lender’s idea to “really increase” its digital reliability.

“Hopefully, once this is onboard, we can ensure a higher degree of reliability for our customers.”

CIMB’s operating expenditure spending for technology at group-level is expected to reach over RM1bil in FY21, a 10% year-on-year increase.

“So, while cost is extremely important, what I will like to emphasise is that we are also extremely focused on growing our key areas.

“You could say that last year was more about controlling costs, this year is more about growing income.”

Loans and provisions

That said, even with growth and investment plans in tact, loan loss provisions or money set aside for doubtful debts will continue to rear its ugly head as the effects of Covid-19 continue to exist and linger on.

This, of course has been the main culprit of banks’ profit erosion and asset quality in recent times.

“When we talk about provisions, we are talking about basically the short term,” Abdul Rahman says.

“We are extremely clear on the fact that we are very cautious about the second half of this year and the expectation is that the second half will be weaker compared to the first half.”

To be sure, the main reason for this is the resurgence of Covid-19 cases and with lockdowns and economic activity that is disrupted, it has been tougher than usual not only for banks but for most businesses to operate.

“I am here to convey that we are extremely cautious in the second half of the year if the pandemic continues unabated, and linking that to provisions, there will be two types of impact,” Abdul Rahman says.

“One is we expect modification losses to be higher compared to the first half of the year. It may not have hit the (full) impact in 2020 because in 2020 we did a blanket moratorium, but now, we are basically under the opt-in programme, whereby for those who want to apply (for the moratorium), they need to actually do so but they will be given approval.

“And so because of this, as there will be no interest upon interest payments to us, there will basically be modification losses,” he adds.

The moratorium – a temporary halt of loan payments by bank borrowers – is in place as a result of the Covid-19 pandemic, which has caused many, especially from the lower-income group, to not be able to service their loans because of factors like job losses and closure of businesses.

“The second part to this is the provisions, and we continue to actually do overlays.”

He dismisses concerns on the bank’s total loan base being linked to any one particular sector, choosing instead to voice his worries over individual borrowers.

“The bigger impact (of provisions made) is more to do with people…how do we estimate how much provisions we need to make in case individual borrowers are not able to resume their payments once the moratorium ends.

“That is the actual concern, because by the time this moratorium ends, it would have been close to two years already that some people have not been servicing their loans.

“Because of this impact, we are aware that there will be provisions that need to be made in case some of them cannot resume their payments.”

At the start of the year, CIMB estimated its credit cost – which creeps up in line with loans that default – to be around 80 to 90 basis points (bps), and although in the first half of this year, its credit cost was lower than that, Abdul Rahman is sticking to that estimate for the remaining of the year.

“We continue to say that it will be at 80-90bps credit cost for FY21, as we continue to build overlays in case some of these borrowers are not able to resume their payments in 2022.”

CIMB’s credit cost during its better times back in 2012 stood at only 16bps.

Back to the current situation, in reality, how many of CIMB’s individual borrowers actually fall under the category of not being able to resume loan payments once there is no more moratorium?

“It is difficult to estimate, but if you look at how many of our customers enjoyed the blanket moratorium last year, it was about 85%.

“After the blanket, we migrated to a targetted repayment assistance, up to 15% actually benefitted from this and now under the National People’s Well-Being and Economic Recovery Package or Pemulih, it has gone back up to probably 25% to 30%, and we believe that this number is across the industry and not just for CIMB,” Abdul Rahman says.

In other words, would a worst-case scenario involve up to 30% of the bank’s individual borrowers not being able to resume their payments?

Not quite, Abdul Rahman says.

“Your guess is as good as mine on how many of the 25% to 30% will eventually not be able to service their loans, but our belief is that a big part of them will be able to resume payments as economic activity restarts.

“We believe in the Malaysian economy and we believe in the CIMB customer.

“We do believe a large part of them will be able to pay back once the economy restarts, but trying to estimate how many is difficult.

“I believe the eventual percentage will be very small as long as economic activity can resume,” he says.

That said, Abdul Rahman says that the focus for now is to help the lender’s struggling customers.

Meanwhile, in its note to clients following CIMB’s release of its first-half FY21 results, Credit Suisse said it was raising its FY21-FY23 net profit estimates for the lender by 4.1%/5.6%/4.4% to factor in lower cost and credit cost assumptions.

“The strong earnings performance so far should strengthen investors’ confidence in the group’s ability to achieve management’s longer-term return on equity target of 12% by 2024,” it said.

At the close on Thursday, the CIMB stock was at RM4.87 per share, valuing the entire banking group at some RM48.8bil.

The stock has traded between RM2.90 and RM4.99 in the past one year.

For now, Abdul Rahman and his team will be watched closely as they steer the banking group towards achieving what they have set out to do.