CIMB Group Holdings Berhad (CIMB) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen, and welcome to CIMB Group's financial results briefing for the fourth quarter of 2023. Our host today is our CIMB Group CEO, Dato' Abdul Rahman Ahmad; and Group CFO, Khairul Rifaie. My name is Steven from the CIMB IR team. By now, you should have received the analyst presentation and financial statements by e-mail from CIMB Group Investor Relations. If you have not, the documents can be found in the Investor Relations section on our website at cimb.com. Before we begin, please be informed that this briefing is being recorded. We encourage you to include your name and company when you're asking any questions to allow us to identify you. [Operator Instructions] At this juncture, I would like to hand over the briefing to Dato' Abdul Rahman and Khairul to present the results. Dato', over to you.

Thank you, Steven. Firstly, I would like to welcome all of you for joining us for our financial year 2023 results briefing. Appreciate you guys making the time, especially late on a Thursday. And I know that we always -- we are the last in terms of announcing our results. So let me start in terms of yet another, what I call, a very positive and strong year ahead. We achieved all but one of our targets, particularly, I think, on the ROE side. We ended the year 2023 with 10.7% ROE. This compared to 10.2% core ROE in 2022 and 9% ROE in last year. Now this robust performance really is underpinned by 3 main things. One, I think we are able to still deliver what I call a very solid operating income year-on-year growth. This is driven by strong NOII expansion, but this was partially offset by the NII contraction due to NIM compression. Second, we are happy that our loan deposit and CASA growth were strong across all targeted segments and geography. And third, we benefited from lower sustainable provision from prudent risk management, recoveries and portfolio de-risking. As such, I think we reported 28.3% year-on-year growth in reported net profit to close to MYR 7 billion, and I believe this reflect positively the impact of the initiatives in our Forward23+ plus strategic plan. Next, I think we are also pleased to announce that we are paying a dividend payout ratio of 55% in 2023. But we are also proposing a special dividend amounting to MYR 747 million, bringing the total dividend to MYR 0.43 per share for the year or close to MYR 4.6 billion. This, I think, reflects something that we discussed with all of you previously, which is how do we can capital optimize better going forward. We are happy to be able to actually to start this particular process in our results basically for 2023. Our CET1 remains strong post dividend. We sustained it at 14.5%, [ 49% ] as at end of the year. Now let me basically just give you a 5-year performance highlight and is something that we are particularly proud of. In terms of net profit, if you look at where we were in 2019, I think we were the third largest -- sorry, the bank with the -- in terms of profit, we were third largest. Now I think we are now clear number 2. In terms of net profit, we grew with net profit from MYR 5 billion to MYR 7 billion. Second, I think you all would remember that we were known to be the bank with the highest cost-to-income ratio. In 2019, we were 53.4%. We ended up 2023 at 46.9%, making us no longer the -- in terms of the highest cost-to-income ratio bank. In fact, I think now, we are really driving down to what I call the top quartile in terms cost-to-income ratio. And last, I think in terms of the ROE, we have been able to grow from 9.3% in 2019 to 10.7%, again, making us now probably in the tier of that second tier of top-quartile ROE amongst Malaysian banks. We are also pleased that I think this -- the strong performance over the last 4 years have been recognized by market. Over the last 4 years, we take 1st of June 2020 to today's share price, we've created close to MYR 38 billion in shareholder value. If you de-compose that between market cap change and dividend, I believe, effectively MYR 31 billion in terms of share price increase and close to about [ MYR 7 billion ] over in terms of dividends that we paid to shareholders over the period. This means that in terms of our annualized TSR, we delivered close to 20% annualized TSR for the last 4 years. And this obviously significantly outperformed not just the FBMKLCI, which went up -- TSR is only 1%, but also KL Financial Index, which during the period only grew or only provided a TSR of 9.2%. So that's a -- I call it a very -- I would like to highlight the work and the impact that actually we've been able to actually deliver over the last 4 years. Now let me just give a quick summary of our key highlights of 2023 results. I'll get Khairul to present in greater detail this result. But generally, if I can just summarize. First, I think we are pleased despite, I think you all know, the very challenging NIM environment because of elevated cost of deposit. We were able to still grow our operating income by 5.9% year-on-year and 1.3% quarter-on-quarter. And this, of course, is basically because of the robust NOII, which we've been able to actually to deliver. Now underlying, I think in terms of loans, deposit and CASA, that's been pretty positive. Loan grew 8.3% year-on-year. Deposit grew 8.1% year-on-year. And the one that I think we are most pleased about is our CASA expanded at 11.5% year-on-year. With this, our CASA ratio has moved back to what we call during the pandemic level of 41.2%. So I think this is -- reflects, I think, the progress that we have been making as part of our strategy to enhance our CASA and deposit franchise. One element that we have to recognize, OpEx basically trended higher. We recorded marginally higher cost-to-income ratio of 46.9%, with OpEx rising 6.9% year-on-year. And that's mainly -- I think this is something that you saw across all banks in Malaysia because of the inflation as well as the technology investment that we are undertaking. The other element I wanted to highlight that really drove our underlying performance has been the significant improvement in asset quality. Our credit costs, we ended up the year at 32 bps. This is significantly lower than 51 bps in 2022 and significantly lower than our Forward23+ 2024 target that we set ourselves 4 years ago. And this predominantly come from what I call a moderated credit environment, but more importantly also on the asset quality initiatives that we've been undertaking over the last 3 years. And because of this, operating income is strong, a lower provision. We've been able to report, on a reported basis, PBT increasing by 14% year-on-year while even though I think on a quarter-on-quarter basis, it is 6.5%. Net profit grew 28.3% year-on-year. And with that, as I mentioned, our ROE improved to 10.7%. And I just covered the highlights. It's obviously about our dividend. We were able to announce a MYR 0.185 dividend, translating to maintaining our dividend payout ratio of 55%. And then on top of that, we are proposing to pay a special dividend of MYR 747 million, which is MYR 0.07 per share, which brings the total dividend payout to a record amount of MYR 4.6 billion or MYR 0.43 per share. And as I mentioned there, CET ratio remained strong at 14.5% post dividend. So I'll pass to Khairul to take us through. Happy to answer the question at the end of Khairul's presentation.

Thank you, Dato'. And good evening, everyone. So firstly, in terms of our key highlights on Slide 6, what Dato' mentioned, we recorded a robust revenue growth, both on a Q-on-Q and year-on-year basis, and we grew 1.3% Q-on-Q and 5.9% year-on-year, and this is a reflection of our diversification in terms of our portfolio. And you can see from a year-on-year basis, Singapore are driving that growth at 33.7%. And Malaysia as well, despite the challenging backdrop in terms of NIM pressure, we managed to record a good growth of 1.9% year-on-year. Our cost was within our expectation. It went up 6.9%. But however, because of the NII challenges, we recorded a negative JAW of 1 percentage point. And therefore, our cost-to-income ratio went up by 40 basis points. As what we highlighted at the beginning of the year, we had specific initiatives on our CASA. We did see the market in terms of that pressure coming through. But our initiatives, especially in terms of the non-retail side, started to bear positive results in the second half of the year. And we ended our CASA ratio 1.3 percentage points higher on a year-on-year basis. And you can see the main driver of that growth, Wholesale Banking growing at 14.8% year-on-year. As what Dato' highlighted earlier as well, in terms of our asset quality profile and risk profile of the group, that has improved significantly year-on-year, a reflection of our reshaping of our portfolio. You can see across all the key ratios, loan loss charge has come down to 32 basis points. Our gross impaired loans ratio has improved by 16 basis points to 2.7%. Our allowance coverage as well has improved by close to 4 percentage points to 97%. Next slide, Slide 7, briefly on highlights of our PBT by segment. Firstly, on the Consumer Banking side, an increase in profits by 8%, and this is mainly driven by lower provisions. However, on a Q-on-Q basis, our profit was down. And this is mainly due to taking a conservative approach on the Thai consumer NPL portfolio. Commercial Banking recorded very good growth, both on a year-on-year and Q-on-Q basis. Year-on-year, a very strong top line growth of NOII at 25% year-on-year and also a lower ECL. On a Q-on-Q basis, the main driver of that strong growth is lower ECL and also some write-backs coming through in Malaysia. Wholesale Banking, good growth, a moderate growth at the 2% as of level, both on a year-on-year and Q-on-Q basis. Year-on-year, very strong NOII growth driven by our treasury and end markets. However, that was partially offset by the significant write-back that we had in the previous year. On a Q-on-Q basis, a very strong top line growth at Wholesale Banking at 7% up Q-on-Q. However, this is partially offset by higher OpEx due to the re-factoring costs that we initiated during the quarter. On CDA and Group Funding, if look at it from a year-on-year perspective, the main driver is really the improvement in CDA. And on a Q-on-Q basis, debt performance was impacted by the year-end accruals that we recorded for the fourth quarter. On Slide 8, highlights of the PBT by country. So Malaysia, recording a 9.3% of growth in terms of PBT on a year-on-year basis, and that's mainly driven by very strong robust NOII and also lower provisioning. On a Q-on-Q basis, the strong performance is driven by fee income and also lower provisions. In Indonesia, on a year-on-year basis, 25.8% growth. It's mainly driven by higher other income and also lower provisions. On a Q-on-Q basis, that's driven by lower provisions. Thailand, the weakness on a year-on-year and Q-on-Q basis is driven by the challenging top line on a year-on-year basis and also driven by some of the conservative provisioning that we took during the second half of the year, impacting our year-on-year performance. Similarly, on a Q-on-Q basis, the conservative provisioning in the fourth quarter impacted the profitability in the fourth quarter. In Singapore, a very strong performance at 30.6% that I mentioned earlier. This is really driven by that strong revenue growth of 33%. On a Q-on-Q basis, the top line is sustained. However, the PBT was impacted by the absence of a write-back that we recognized in the third quarter. Breaking down the P&L. Firstly, on operating income on Slide 7. So overall, the growth of -- the strong robust growth of operating income, both on a Q-on-Q and year-on-year basis, is really driven by NOII. You can see on a Q-on-Q basis, NOII grew by 7.9%. However, that is partially offset by NII weakening by 1.5% Q-on-Q. And this is driven by the 10 basis points margin compression Q-on-Q. So I'll just deep dive a bit on this 10 basis points margin compression Q-on-Q. Within that, Malaysia, on an underlying banking book basis, that only slightly contracted in the low single digit. And this is mainly due to what we have highlighted before, the seasonal pricing pressure that we saw, especially on the wholesale funding side towards the end of the year. On a reported basis, Malaysia contracted Q-on-Q in the high single digit, and this is mainly coming from the treasury and markets book. In Indonesia, as what you have already seen, right, our margins did contract by 28 basis points Q-on-Q, and this is impacted by the significant volume in terms of the short-term, low-yielding corporate loans. Similar to Malaysia as well, Indonesia was impacted by the seasonal pricing pressure in the fourth quarter. In the fourth quarter as well, we had some narrower spreads on our bond assets, and this will likely recover in the coming quarters. What's offsetting this is Singapore, on a Q-on-Q basis, expanded margins by 5 basis points and that is both coming from the asset and liability side, whereas in Thailand, slightly offsetting it, is contracting by 17 basis points on a Q-on-Q basis. But this is mainly because of the market opportunity that we saw, and we bought a significant amount of bonds at lower yielding compared to the average asset yield of our book. We saw our debt is to take some potential opportunity in terms of the markets in 2024. If you exclude that significant purchase of bonds in Thailand, on an underlying basis, margins in Thailand was broadly stable. So similarly, if you look at our NII on a year-on-year basis, the 3.5% contraction is really driven by the margin contraction of 29 basis points. Most of this pressure is coming from the treasury markets book, where a lot of the income is booked under NOII. From the banking book perspective, the margin compression on a year-on-year basis is around the low teens of our level. The driver, in terms of the overall margin, if you break it down by country, Malaysia and Indonesia is contracting higher on a year-on-year basis in 2023 versus the group average. Thailand is slightly lower than the group average contraction, whereas Singapore expanded margins on a year-on-year basis. So our robust operating income is really driven by our strong NOII. So on a Q-on-Q basis, NOII grew by 7.9%, and that's mainly driven by fee and other income. And this is really driven by the underlying fee income where Wholesale Banking on Malaysia booked some significant fees during the quarter. And similarly, there were some lumpy recognition on consumer Malaysia related to credit cards. Trading, I would say it's relatively flattish, just slightly down by 1.1%. We had a very good third quarter, and this is more or less sustained into the fourth quarter. On a year-on-year basis, trading and market-related income was really driving the NOII growth. Another driver is under other income, where we recorded an NPL sale of about MYR 300 million and the bulk of that coming from a Niaga versus last year of just slightly under MYR 100 million. Moving on to expenses on Slide 10. And it ticked up Q-on-Q, and this is mainly due to the catch-up in year-end accruals, particularly under personnel costs related to bonus and also admin and general expenses mainly due to the accruals. During the fourth quarter under personnel costs that I mentioned earlier, we also booked a one-off restructuring fee -- restructuring costs related to Wholesale Banking restructuring that we did. On a year-on-year basis, the 6.9%, our growth is driven by personnel costs due to the inflationary wage pressure and some of the investment in terms of hiring that we did. Technology cost continues to be a driver, given our ambition -- given our tech investments that we've made in the last few years. Our marketing spend, in terms of percentage terms, did increase significantly. But the driver of this is really on the Philippines partnership variable costs. I highlighted earlier, because of the NII pressure, we did record a negative JAW of 1%. So in terms of our cost-to-income ratio, that picked up by 40 basis points year-on-year. Moving on to provisions on Slide 11. On a Q-on-Q basis, our provisions went up to 31 basis points versus the third quarter of 21 basis points. If you go by segment, on the retail side, the increase to MYR 435 million is driven by two. Firstly, the Thai provisioning where we take -- where we took a more conservative view on our NPL, our portfolio. Secondly, in the third quarter, in Malaysia, we had some write-backs in third quarter. On the non-retail side, that came down, and that's driven by two things as well. One is that we had an upgrade on the NIM in the aviation sector. Secondly, we also had some write-back under Malaysia commercial. Under recoveries, that increase on a Q-on-Q basis, and that is mainly driven -- sorry, that is mainly driven by the aviation sector recoveries coming through under the recoveries segment. On a year-on-year basis, if you look at retail, that has come off significantly to MYR 1.3 billion. If you recall, in 2022, especially towards the middle of 2022, we added overlays. So in 2022, we added overlays of about MYR 400 million and the bulk of that was under consumer. If you look on the non-retail, that has also come down to MYR 1.4 billion versus MYR 1.5 billion last year. We didn't make any significant provisions this year. We did top up, if you recall, in terms of our Malaysia leisure exposure. And we also took, during the third quarter, some conservative assumption from a portfolio basis on our Malaysia commercial NPL, and that was booked this year. In terms of recoveries, that has remained stable on a year-on-year basis. But in both years, the bigger recoveries that we recorded was similar in last year and this year, which is attributed to Malaysia and also Singapore. So on the asset quality ratios on Slide 12, you can see the improvement in terms of our credit cost coming down to 32 basis points, even lower than our 2019 position of 45 basis points Similarly, if you look at our GIL ratio, that has now come down to 2.7%, a 60 basis point improvement compared to last year. And to compare that even in the pre-pandemic level of 3.1%, that's a significant improvement. What is more significant is the allowance coverage compared to pre-pandemic at 80.7%. We are now at 97% allowance coverage and also an improvement compared to last year of 93.1%. On our balance sheet momentum, Slide 13 on gross loans. The momentum picked up from a -- on a Q-on-Q basis. That grew by 2.1%, driven by Consumer Banking and Commercial Banking. Whilst on the year-on-year, on a year-on-year basis, the main driver is more on the non-retail side. Breaking that down by country, in Malaysia, the 5.3% growth is mainly driven by commercial growing at 8%, consumer and corporate in Malaysia was growing at about 5%. In Thailand, the driver of that growth is consumer growing at 10.4%. In Indonesia, the main driver is corporate and consumer. Whereas in Singapore, the main driver is corporate growing at 13% year-on-year. On the deposit side, this is where the momentum further picked up during the fourth quarter in terms of our CASA growing at 6.6%. This is across segment, but in particular, non-retail are growing higher than that level. I think it's also worth highlighting that Malaysia consumer recorded growth during the fourth quarter. We saw some stabilization towards the end of third quarter, but we managed to record our growth on the Malaysia consumer in the fourth quarter. And you see the strong 11.5% year-on-year growth translating to our improvement in terms of our CASA ratio to 1.3 -- improvement by 1.3 percentage points to 41.2%. And that improvement, if you look at it from a country perspective, it's across Malaysia, Indonesia and also Singapore. Slide 15, just a bit more color on what Dato' mentioned earlier in terms of our dividends. If you look at it from a BAU perspective, we are paying up -- we are maintaining the payout of 55% in our second interim, similar to our first interim of 2023. And that is increasing compared to 2022 from 50.5% payout to 55% payout. Similar to 2022, we are fully paying that in cash. And on top of that, we are having a special dividend of MYR 750 million, and that's equivalent to MYR 0.07, and this is coming from our optimization of capital, which brings the total dividend to MYR 4.6 billion, which gives a yield of 7.1%. As what Dato' mentioned, we will further explore capital optimization opportunities in 2024, which is, of course, subject to regulatory requirements, approvals and also in terms of the macro backdrop. So despite us increasing this payout and special dividends, our capital remains strong and is stable on a year-on-year basis at 14.5%. If you look at our liquidity ratios as well, that is on an improving trend on a Q-on-Q and also on a year-on-year basis. Moving on to performance by segment, with Consumer Banking first on Slide 17. If you look at the PBT coming down, that's mainly driven by higher provisions and also some of the NIM contraction impacting NII. On a year-on-year basis, a good growth of 8%, and this is mainly driven by our lower provisions as we booked in the prior year in 2022 overlays. In terms of the asset momentum, strong growth of 7.4%, mainly driven by Thailand and also Indonesia. Commercial Banking on Slide 18. The strong growth in terms of PBT during the quarter is driven by the lower ECL as we took that portfolio conservative view on Malaysia NPLs, which impacted third quarter ECL. This quarter, we also had some write-backs coming through in Malaysia commercial. On a year-on-year basis, strong growth of PBT of 22.6%. The main driver is that strong NOII growth of 24.5%, mainly driven by FX fees. Provisions as well driving the PBT growth being lower due to lower provisions in Malaysia and also Indonesia. The strong growth of our assets is mainly driven by Singapore coming from a low base, growing at 18.6% per year. Wholesale Banking on Slide 19. In terms of the Q-on-Q growth, are growing at 2.6%. You can see the top line growing very well, driven by both NII and NOII. However, you can see at the Wholesale Banking level, there's significant pickup in terms of OpEx. But this is mainly due to the one-off nature of the restructuring costs that will result in a material cost saving at the Wholesale Banking level going forward. On a year-on-year basis, moderate growth of 2.9%. But if you look at NOII, in terms of the strong growth, that's really driven by the trading and FX market-related income, mainly in Malaysia and Singapore. What's offsetting that, because we had a significant recovery in 2022, so that pickup in terms of our provisions, partially offsetting the strong NOII growth. On CDA and Group Funding on Slide 20. If you look at the Q-on-Q contraction in PBT, it's really driven by higher OpEx, and that's really driven by the year-end [ ends ] accruals that we did. On a year-on-year basis, that strong growth of PBT is driven by the top line growth, mainly on CDA, in particular, Philippines, but also some investment-related income. For the year, CIMB Philippines is what we highlighted earlier and also during our Investor Day. We have broken even 2023 for Philippines. And in terms of indicators, the momentum continues to be positive. We grew our number of customers by 13.8%. And in terms of our deposit balance, it's now touching the MYR 2.1 billion mark, growing by 24% year-on-year. Similarly, Touch 'n Go Digital as well, if we look at the indicators, that momentum continues to be positive. In terms of the total registered users, we are at 26.3%, which is a 41% year-on-year growth. Annual transacting users is now at 15.7% (sic) [ 15.7 million ], which is a 70.7%. Lastly, on Islamic Banking on Slide 21. The contraction Q-on-Q in terms of PBT is mainly driven by higher provisions. On a year-on-year basis, the slight contraction of PBT is really driven by OpEx and also provisions. But however, if you look at the momentum on the asset side, that continues to be positive, growing at 13.8% year-on-year. So that's the end of the financial, and I pass this presentation back to Dato'. Thank you.

Thank you, Khairul. So let me do a quick progress update in terms of our Forward23+ strategic plan. Most of you are aware that the plan was developed 4 years ago. We are at the final year of implementation, and we expect to develop our beyond 2024 strategy come probably by third quarter this year, when we'll be sharing it with all of you once developed. So I think Slide 23 effectively is something that you guys are very familiar with. Slide 24. We think that we are building a very positive momentum towards meeting our Forward23+ ambition. I mentioned to you about our shareholder value creation as well as dividend yield. So I wouldn't belabor that particular point. In terms of portfolio reshaping, I think we are virtually completed. And I think going forward for 2024, we'll probably not show this slide anymore. I think we are now quite comfortable in terms of where our portfolio is. So as you can see, basically, areas that we wanted to invest continue to actually to grow. For instance, consumer, growing like 24%. Malaysia, 21%. Commercial Malaysia is like 31% from 2019, and Indonesia consumer have grown as a book to 33%. Indonesia commercial, we believe we have fixed the issue, and we will start effectively regrowing the book. So we ended up 2023 with a 4% growth rate. We would not go crazy. We would like basically that for it to grow probably 4% or 5%, basically level. But I think that decline in that book has stopped, and we don't intend to actually to -- and we intend actually to now regrow the book judiciously. Thailand exit. In terms of Thailand, our commercial exit is in progress. I think we are down to -- we descale further by another 25% in 2023. Down close to like 73% since we embarked upon it. I think we are down to like 25% of the balance to what we had in 2019. Next slide. Also, I think we probably would change this slide going forward. Before, if you recall, a lot of issues about our digital reliability. I think we have managed well this issue. I'm not saying that it's 100% solved. Obviously, in terms of architecture and complexity of a large financial institution, it's complex. So -- but I think we have now a good handle. So if you look at it, our availability rate has been sustained over the years. But this year, particularly in Malaysia Clicks, I think, and OCTO, we have been keeping 99.9%. There is more unscheduled downtime on our Clicks in '23. But the good news, I think, in terms of recovery, I think we've been able to do. And it's -- the problem effectively are isolated, and we are able to isolate the issue better in such a way that I think in terms of the customer experience, impact has been quite limited. We are also, I think, happy to report probably hit the peak and will start moderating our technology CapEx this year. Even though we budgeted -- or sorry, in '23, even though we budgeted MYR 900 million, we ended up slightly below MYR 800 million. That's part of our optimization strategy. We've been able to execute and contract out some of the CapEx at lower cost. We think that basically, even -- I mean in terms of going forward, the level of CapEx can come down. It will not come down significantly. We would like to continue to invest in the business, but we think -- we believe that the peak is over. So in terms of -- I think this is where most of you are interested to actually to hear. So I think the journey that we've been taking since 2019, most of you are aware of what are the drivers behind that. It's really about the portfolio reshaping, the OpEx takeout, which is close to more than MYR 1 billion over the last 3 years. ECL reduction have been significant, and we've been able to do that. But where we land, which is we landed at 10.7%, particularly 2 drivers that really, we didn't anticipate when we embarked upon this journey. First, I think the NIM compression, meaning the NII growth was much higher than we anticipated. We didn't anticipate effectively in terms of the competition in terms of cost of deposits. But the more -- actually, a larger number effectively is really about having to hold a higher CET1 ratio. As you know, our CET1 ratio was -- is, at end of December '23, is at 14.5%. When we did our Forward23+ plan, we are at -- we were projecting 13.5%. Now if we had kept capital at 13.5%, our 2023 ROE would have been 11.3%. Again, meeting what we call the target -- the higher end of the target that we would set ourselves. So most of you are asking what's the path effectively for 2024, being the last year. I'm well recognize that we committed 11.5% to 12.5% as our ROE target for 2024 on the strategic plan. We are being honest that we believe that we'll probably fall at the lower end of that target. And in our guidance later, I'll show more. We are projecting or targeting effectively an ROE of 11% to 11.5%. So in theory, we need to drive effectively our ROE by another 30 to 80 bps. How we're going to deliver that? One, of course, continued BAU profitability from asset growth. But really, it's all about NIM recovery this year. I think this whole effort that we are making to enhance our CASA franchise is all about driving NIM recovery, lowering our cost of deposit. Obviously, we will still hope for NOII expansion and wealth segment growth. But a big, big driver for 2024 is all about our NIM recovery. Next, I think we need to actually to mitigate our cost escalation. We fully recognize that in 2023, because of the cost inflation and technology investment cost basically high, and we want to actually to deliver in '24 positive JAW through what we call cost containment strategy. But where is all this is coming from? I think we can basically look for the year ahead is really, we expect higher contribution from Niaga as well as CIMB Singapore. Now Niaga, effectively, we delivered our 10.7% ROE with Niaga revenue being relatively flat in [ during ]. And that's because they are also facing NIM compression in Indonesia market. Again, we feel that can be addressed in 2024 or is partially addressed in 2024, and we expect revenue growth coming back basically from Niaga, which can sustain our credit cost in Niaga, will drive what we call bottom line increase. The other part that I have to say when we embark on Forward23+, we didn't expect this is, is that our transformation of CIMB Singapore has been very, very strong. Very spectacular, if I were to say. So CIMB Singapore now has become one of the biggest contributor in terms of profitability growth. And that's really driven by, of course, I think the economic environment is positive in terms of there's a lot of excess liquidity in Singapore that helped to really drive down the, I call it, helped improve the NIM. But more importantly, I think we are executing very well in Singapore. So if you look at our CASA growth, we have 20% growth in CASA, really driven by what we call the consumer side as well as the commercial side, right, by targeting effectively commercial SME as well as business banking customers in Singapore. Of course, we had to offer more competitive pricing on the rates, but we've been able to actually to target it. The other real success in Singapore has been driving CASA through retail for people who are interested on the Malaysia-Singapore corridor. And the third element, of course, is coming from our FICC operation. So that, we expect our CIMB Singapore to be a significant contributor in 2024 in terms of growth. The fourth part effectively is really about digital asset turnaround. As mentioned, Philippines have broken even. We expect it to record now what we call profits in 2024. I think momentum is good and really now become truly a bank, meaning in terms of with the right cost-to-income ratio, the right -- basically, generating positive ROE. So one element is CIMB Philippines. The second element is that we expect narrowing of losses from Touch 'n Go Digital. I think we have now have come to what I call a real market-leading position within the e-wallet space. And we expect that to be able to drive down our -- the -- basically, the path towards profitability and sustainability. So we expect significant reduction for the year in terms of the burn rate effectively of CIMB digital asset. And one element that -- while we are relatively confident that we got approval to actually now to charge any credit card transfer between credit card and the e-wallet. And that really is the one of the major, what we call, cost element that we had to actually to incur where we are not able to actually to charge fees for this type of transfer. On the credit cost side, it's going to be sustained. We don't expect that it's going to be a delta. Basically, growth in -- on credit costs, but I think it's really important for us to sustain within the level that we have been able to actually to deliver. And last, as I mentioned, I think [ Bu ] Khairul and I mentioned, I think we will continue to explore capital optimization to be a driver effectively to improve the ROE. Lastly, before I conclude, it's really about sustainability. Very happy to report under our S&P CSA, we have been rated, I think, 88th, top 12%. 88th means basically, it's the top 12% financial institution, 12% of financial institution globally. So this really surpassed our 2022 achievement of being at top 20%. And I think really, we've been able to drive through in terms of our sustainable finance target. If you look at it, we have tripled our original target, MYR 30 billion to MYR 100 billion. And this target is supposed to deliver in 2024. This year, to date, as at end of 2023, we already delivered MYR 87 billion. So we do expect that we should be able to exceed the MYR 100 billion mark at the end of 2024. Just to share with you some of the key highlights. Actually, we are very proud to be able to publish Our Path to Net Zero. This is a paper that really outlined the approach in terms of our 2030 net zero targets as well as high-level transition strategies for selected carbon-intensive sectors, with palm oil that we come up with, power, coal and cement. This, for your information, contribute half of our current financed emission. So we are also very proud that we are the first global bank to unveil a science-based net zero decarbonization target for our palm oil portfolio. And also, I think we've been able to also launch our Malaysia's first comprehensive sustainability-linked financing proposition for SME. Just for your information, in terms of our target, we target to reduce our palm oil and power portfolio emission intensity by 16% and 38%, respectively, by 2030. This is an ambitious target, but we have a clear road map on how to actually to deliver this over the next 6 years. In conclusion, I think we are happy to report that we met virtually all of our 2023 targets, save for cost-to-income ratio, and this is really driven by our NOII. We are cautiously optimistic of a continued positive financial performance, but we are concerned of the uncertainty within the macroeconomic environment. But -- and we'll remain what we call vigilant. So in terms of the target that we basically put ourselves in 2024, we are putting what we call a stretch target to deliver ROE between 11% to 11.5%. In terms of dividend payout ratio, we'll maintain effectively. Our plan is to maintain the 55% level, but continue to look at capital optimization. Loan growth, between 5% to 7%. Our cost-to-income, we want to bring it down to -- from the 46.9% in 2023, we like to deliver a positive JAW. Loan loss charge, I think that's very sustainable. We are targeting 30 to 40 bps depending on the environment of that. And in terms of CET1 ratio, we are not changing it. I think we believe anything above 13.5% effectively [ sets up ]. But of course, this is subject to regulatory oversight as well as macroeconomic environment. So that's where we are today. We're happy to take any questions that you may have. Thank you.

Thank you, Dato' and Khairul. And we will now begin the Q&A session. [Operator Instructions] The first question, Dato', comes from Ben from Macquarie.

Well done on a good set of results. I guess, the first question I have to ask is about the dividend payout. Just want to understand how -- whether you think it's possible for you to sort of hit this kind of a 65% effective payout going forward with a special dividend. How we should think about your CET1, trajectory wise? Do you think you want to try and cap it at around this 14.5% level? And obviously, as you go into next year, Basel III adoption is around the corner. Do you think sort of 14.5% is a comfortable level with that coming in 2025?

Yes. Thank you, Ben, for that question. In terms of the -- on a BAU basis, right, if you look at our trajectory of growth and also in terms of our internal capital generation, given the improving profitability across our geographies, we think that a BAU 55% payout is sustainable to maintain either a stable CET1 going forward or potentially slightly growing a bit from that 14.5% of CET1 ratio. I think what is the biggest question is whether we have an opportunity, right, to optimize that 14.5% to something that is slightly lower. But again, that one is something that we're going to explore through the year and like what Dato' mentioned, I think we do have that opportunity. But it is really subject to regulatory approvals and also dependent on how the macroeconomic backdrop and the outlook on the macroeconomic backdrop. To your last point in terms of Basel III, in terms of the standardized approach impact, the good thing is that Bank Negara has come out with the calendar in terms of publishing the guideline. Number one is the fact that they are delaying it by 1 year, so they're going to publish the guideline in 2026. And secondly, based on our high-level calculation in terms of the impact, it is fairly manageable.

Okay. My next question is a short one. What's your NIM guidance for 2024? And maybe you mentioned that there's some bonds moving that number around. Would you maybe want to normalize your NIM guidance for that? What's the underlying NIM guidance, yes?

Yes. I think from a reported basis, right, our NIM guidance for the group is stable to plus 5 basis points. If you've seen Niaga, Niaga is guiding 4.2 to 4.4, so they're looking at a stable to a contraction of minus 20 basis points on a year-on-year average basis. Malaysia, we are also looking at stable to plus 5 basis points on a reported basis. We do see some path in terms of recovery, especially coming from the fourth quarter NIM number, both in Malaysia and also Indonesia, mainly due to the seasonal impact. But also in terms of the deposit side, like from an underlying basis, we do see some potential scope of improvement in terms of lower deposit rates, both in Indonesia and also Malaysia. We did that already in January. We cut our deposit rates by 5 basis points in terms of our campaign. We are looking at further cutting next month. And of course, we hope that the industry will move towards that direction as well. In terms of your -- the breakdown of between the T&M and banking book, I think once we will explore disclosing that. And once we do that and if we do that, that's when we can give you a bit more color in terms of -- on an underlying basis, right, on the banking book versus the T&M book.

Okay. And I just want to clarify something. I think your peers are guiding for some margin compression this year. It's order anywhere from low single digit to 5 basis points. Could you maybe just elaborate a bit on what gives you that view that Malaysia, you can expand your NIM spread about 5 basis points? What's driving that?

Yes. On this on Malaysia, I think there are 2 parts of it. One, I think we continue to try to actually to moderate down further our cost of deposit and our -- what we call trending, effectively on the first quarter, seems in the right trajectory. The other part that I think -- because obviously, NIM is a combination of also the asset side of the situation. We have decided not to what we call trade go forward. We call volume loan growth via the asset yield side. So on our side, I think we are taking a position. We will rely on our sales machinery to defend our market share. But we would not want to go to what we call the very low levels, and in our perspective-ly, low levels of loan rates, particularly in the custom -- in the retail side in Malaysia. Similarly, I think on the corporate side, I believe we -- sorry, I -- we do not intend to actually compete effectively in terms of pricing, meaning that land at what we call a negative return. So I think these are the part of the 2 strategies. I think it's a reflection, I think, of, I think, different strategies being adopted by different banks. We are not sure. Of course, if you can grow your volume bigger than your NIM compression, you still have a NII expansion. But on our side, I think we are taking the position that we will -- we are focusing on NIM recovery rather than trading on loan growth -- effectively, loan growth and then just continue to drive our CASA to drive cost of deposit lower.

And I think just to add, that gives us two things, right? One is the opportunity to the -- our liability also will give some potential NIM expansion, where we can shut off some of the higher cost of liabilities, and that's both in Indonesia and also Malaysia. But secondly, specific to Malaysia, what Dato' mentioned in terms of the lower-yielding asset, because when we look at it from a [ railroad ] perspective, which, of course, results in ROE, we see that at this pricing point, it is more ROE accretive to walk away on some of those really competitive pricing.

Okay. That's very clear. And I suppose cost, it will be a big factor that gives you some flexibility to walk away from volumes. What's your guidance for cost growth for '24?

We are still -- we're targeting -- I think just to be very clear, we are targeting like what -- in our summary slide, we're targeting a positive JAW. For costs, we're looking at slightly higher than the mid-single digits of level.

Our next question comes from Aakash, UBS.

Congratulations on a good result and very commendable progress so far. I have 4, 5 questions. Very quick ones. So the first one is just on the noninterest income. So you did mention -- I mean, I think, firstly, in the Q4, which is usually seasonally a weaker quarter, you saw a pretty decent Q-on-Q growth. I think you mentioned there were several parts to it. There were some lumpy recognition on the wholesale book. There was something on the consumer side. There was also NPL sales. So if you could just help us understand a little bit more clearly what the different components were and which are more sustainable versus very one-off in nature for Q4 on the noninterest income side.

On a sequential Q-on-Q basis, right, because of the lumpy fees on the recognition on the consumer side. Also, because on the wholesale side, it's deal related, right? So on a sequential basis, you might see potentially some weakness. But for overall, on a year-on-year basis, if you look at the underlying fee income on consumer and also on the wholesale side, we are relatively optimistic in terms of recording good growth on a year-on-year basis. The other component is obviously on trading. That still remains a big question mark. But so far, that is looking okay, right? And we did end the year at a relatively high, high level. And we are looking so far, right, so far, it looks to be quite sustainable. The bigger part, I guess, is in terms of other income. And again, this is on a sequential basis, can be quite volatile depending on the closure of some of the NPL sales pipeline that we are looking at.

So if I were to take out those lumpy consumer items and the wholesale deals, then it would have been flattish to slightly down on a Q-on-Q basis?

On a Q-on-Q basis, I don't think that we need -- you should take that out, right, especially both on the consumer and the GWB side because those are underlying business-related fees. They're not one-off. It's just that the recognition comes through in the fourth quarter. We've been working on, for example, the GWB. We've been working on those deals for quite a while, and that materialized in the fourth quarter. The consumer fees is really a recognition of the period, where we recognize that during the fourth quarter, because of how we recognize some of those fees on the credit card. So it's really reflecting the underlying businesses. And we do expect growth going into 2024, right? So it is an underlying growth in terms of the business. But to answer your question specifically, which I think we shouldn't exclude, you will see, I think, in terms of the fee income to be broadly flattish Q-on-Q. But again, just to reiterate, we shouldn't exclude these fees from the underlying.

Understood. The second one is just on credit costs. You have 30 to 40 basis point guidance for 2024. Is that just mainly BAU? Or are you looking at building up the coverage furthermore from the 97% level?

Yes. So on our side, I think we are -- of course, I think the loan loss coverage is what we call -- we use it as a metric to see how resilient we are going forward, and I think we intend to achieve 90% to 100%. But our biggest driver of loan loss coverage is really about GIL, about gross impaired loan ratio. So we don't see -- we think the credit cost effectively already hit what we call a normalized level. Of course, we would like to continue to optimize them. But the driver for loan loss coverage is really about reducing our gross impaired loan. So you can see, we actually reduced it from 3.3% to 2.7%. I think we have aggressive target to drive down debt further. This is just basically looking at our impact, what can we do with it, making sure that inflows basically is less than the outflows. And outflows, of course, is through charge-off, through NPL sale and all that. And I think we now have gotten better grip in terms of this number. And each country, each BU have a clear plan on how to drive down this further. So we think the LLC, or loan loss coverage, less of the credit cost. Credit cost, I think, is basically is like normalized further. And really, I think the loan loss coverage, we can say that 90% to 100% is something that we are -- we would like to actually to keep to make sure that we are resilient going forward.

And do you have still any overlays or buffers left, which you can help to support the provision requirement for FY '24?

Yes, we do. But as I -- we mentioned, basically there, we would like -- I think we delivered the result without significant release on the so called overlay in 2024. Because accounting-wise, overlay can be -- has to make what we call permanent right, generally. So we will focus on reallocating the overlay back into our model. There could well be some, I call it, positive impact. But our focus is really to reallocate the overlay into effectively our proper NIM model so that, I guess, as I said, we keep this level of loan loss coverage ratio. 2023, I wouldn't -- I'm not being, what I call, wrong to say this. But we could deliver much higher ROE this year if we just took the aggressive position to actually to release overlay. And we decided that that's not the way we wanted to basically to make sure underlying-wise, we remain, I call it, solid resilient basically for any issues going forward, yes. So plan is to reallocate overlay into our models going forward. And if there may be some write-back, effectively, it's much more to make sure that the thinking behind the model effectively is solid and dependable.

Okay. Got it. And then the third question is just on the loan growth. So I was hoping to understand what are the major drivers of the loan growth for FY '24 that you're thinking about? What are the opportunities that you're looking at in the market? And then what would be an upside and downside risk to that 5% to 7% target that you've set for yourself?

To tell the truth, just to cover back the point that I was saying, we see demand to be not a constraint. Demand -- and I think a lot of my colleagues within the financial -- within the banking have announced, demand has been pretty -- I would call it pretty solid. Of course, Malaysia economic growth is good. Even Indonesia, basically, that has been positive. And I don't think it's what we call the constraining factor. We have put in a lower loan growth target predominantly because of the liability side. We do not want to put, what we call, us under pressure by virtue of effectively on growing loan too aggressively. And as I said, our strategy is really about NIM recovery this year. So that's the reason why we are forecasting a lower loan growth number. And I think we have taken the decision not to, I call it, to lend if you -- if we're going to lose money for it. I mean generally, I think that's a principle that we do. We know there is some risk, meaning that whether there's a likelihood that we will lose some market share in terms of the mortgage side of the business, particularly. But as I said, we will trust our sales machinery to make sure that we are able to maintain our market share even though we -- our pricing basically is slightly higher than market.

So within that number, Aakash, that 5.7%, I mean, of course, you saw Niaga's guidance, which is 5% to 7% as well. But I think it's important to highlight that for -- within that number, Malaysia, we are looking to grow at about 5% of level. So broadly in line with industry, not taking any market share.

Okay. Got it. And then just the last very quick question. So you mentioned about BNI publishing a guideline in 2026 for Basel III. Is -- again, the implementation was in 2025, right?

Yes. But based on the calendar of the -- on the Bank Negara regulatory guidelines, the calendar that they're going to do, it looks like based on that calendar, that's only going to be implemented on 1st of January 2026.

I see. Okay. And then just lastly, any updates on Dato's plans to stay with CIMB or leave, as reported by the media?

Obviously, there's -- I mean, I'm cognizant of the rumors and speculation in the market. And our policy is not to comment on any of these rumors. Aakash, I'm focused with the team to really execute on the Forward23+ strategy. So if I can leave it to that, as I say, our focus is really to continue to progress on the initiative that we have on this.

Next question we have is from Peter Kong. Peter?

Just two questions from me. Actually, the first one is just adding more color to the questions already asked on credit cost. I note that from 32 bps you closed this year, you actually gave a wider range of 30 to 40 in 2024. And I bring it up because some of your peers are actually trying to say that now in 2024, they could improve this a little bit more. I'm just trying to understand whether in 2023, were there very significant lumpy recoveries that may be -- you think that it may be difficult to replicate? And that's why credit costs could have a chance to go up to the 40s? Otherwise, I can see that your business BAU will be doing closer to 30 and 40, right? Just wanted to understand, were there something lumpy that we take cognizance of?

Of course, there are recoveries number effectively within the ECL on that, particularly from Singapore. I think there's been a number of recoveries that we've been, call it, recording both in 2022 and 2023. We are just cognizant that whether those recoveries can continue to actually [ recover ]. But as I say, we gave a bigger range not because of anything because I think we are trying to be probably conservative in terms of our forecast. We -- at the moment, we do not see what we call blowouts of potential rates or effectively, a blowout. But I guess we just wanted to be conservative to have what we call a wider range just in case it doesn't [ do ] strategically that. Only, I guess, risk and you can see in the numbers, it is Thai pop-up provision that we did. We think that we have done the bulk of it. But Thai market or retail market has been unique in the sense that you need to -- if you want to accelerate your GIL, you may need to actually sell the NPLs basically faster. So I think probably, that's one probably risk area that I think we need to actually to factor in. But generally, this, I call it, large portfolio, so it's not what we call a episodic event that basically that will create what we call a large increase.

Okay. My last question is relating to CIR. Because I think your Forward23+, initially, you wanted to bring it below 45%. But for FY '24 guidance, I still see it's 46.9%, meaning to say income and expenses will grow somewhat in line. And in Page 16, I also noticed that like for example, this year, technology spend was not as much as initially planned or committed. I was just trying to understand how much flexibility you see yourself having, moving into 2024, into what you need to spend and what you absolutely have to and what you can actually have a little bit of a leeway to delay that, right? Just wanted to get some idea on those large items.

Yes. So that's one thing about -- obviously, I think that our target, effectively '24, is higher than our original Forward23+ target of 45%. The big driver out of it that we didn't factor in have to be on the cost inflation, particularly on the personnel costs, particularly on the collective bargaining in -- effectively in Malaysia, and the cost obviously also in Singapore because obviously, inflation is basically very strong. So these are the two main driver. And of course, revenue didn't grow as what we anticipated to grow because of the NIM compression. That's the reason why we are likely not to be able to hit the 45% mark. On the collective bargaining, we are entering into another cycle. So if you recall, what was settled was during the COVID period. But so I think we are just cautious on the impact of this. As you know, it had a material impact to all local banks in Malaysia. So I think we're just conscious on how does that. So that, I think, is the bigger issue. I think the cost inflation is one thing that we need to actually to be cautious on. I think what we want to do in '24 is really to drive positive JAW. We -- as you know, in '23, I think we had a slightly marginal negative JAW so -- but I think we want to reverse that, and we want to actually to have that, which is why our target is below the level that we had in 2023. However, I think if you look at as an industry, I think basically, one slide I shared earlier, it's really about -- you can look at this issue. It's not just -- I think, the whole industry is facing this challenge. So we try to actually to do it probably easier on the wholesale side. So as you know, we did a restructuring exercise in the wholesale side in last year, which is part of the reason why costs also got a big increase because of the one-off restructuring cost that we took. So this year, it gets done, then obviously, we have a opportunity to reduce cost. But as I say, in Malaysia, I think the challenges is really all about managing the cost.

The next question we have is from Yong Hong from Citi.

Maybe just 3 quick questions. So firstly, I just want to clarify, the NIM guidance is from 2.15% or is that from 2.22%?

That's from -- on a year-on-year basis. So on a year-on-year basis, the NIM guidance is stable to plus 5 from the 2.22% level.

Okay. Got it. And you mentioned sequentially, that will be driven by funding cost optimization?

Yes. So from a sequential basis, yes. Sequential basis, so from that 2.15% in the fourth quarter, right, the driver -- the main driver of NIM is mainly on the cost of funding side. And that's both driven by the seasonal impact of the fourth quarter normalizing and also from the deposit drive in terms of cutting the rates, the impact coming through in the first quarter of this year.

And also the swap, right? We are able to grow our deposit CASA better. We'll be able to swap it -- to swap the expensive STMMD and repo effectively in our pipe. So that's the strategy, what's going to drive the NIM recovery.

Okay. Got it. And on capital, I think the credit risk RWA dropped sequentially. But there was some loan [ scope ], which will be -- is the capital optimization that you mentioned. Is there any guidance on the quantum that you can do for this year?

In terms of capital, in terms of RWA, right, RWA optimization for 2024, we don't expect it to be that material. We had some lumpy implementation in the fourth quarter. But if you look at it from a total year perspective, it wasn't from a -- of our RWA base, right, for 2023 itself over the year, it wasn't that significant. Of course, over the quarter, that was fairly significant. So we do expect these BAUs of RWA optimization rollout further enhanced models to continue, but it wouldn't be a big driver of reducing our RWA density from a year-on-year perspective.

Okay. Got it. And maybe just one more question. I think it's on capital allocation. It appears that the profitable business in Thailand is the wholesale segment. And I think retail probably provide the funding base. So just want to understand from a group ROE and capital allocation perspective, is there anything that you can manage or do for this segment?

Yes, I think that's a good spot basically on that. Obviously, our wholesale, I mean the weak performance on Thailand really masked the strong performance on the wholesale side, particularly Corporate Banking and FIG. So obviously, our challenge is on the retail side on that, particularly on 2 fronts. One is the top-up provision that we needed to do. But second is really on our auto financing business. We are embarking upon what we call a turnaround plan for the auto business. The market itself is challenging because there is a cap rate introduced by the regulator, a cap interest rate rule basically introduced by the regulator, as well as the general challenging, I call it, economic environment in Thailand. So our focus is really to turn around effectively the business. But strategically, and I think probably, we'll cover that in our beyond 2023-plus strategic plan, I think we will ask ourselves tough questions like how in terms of capital allocation -- basically, where we want to move forward in terms of capital allocation for the retail side. The good thing about retail side, at least what we call the wealth income and the preferred segment in Thailand, is doing pretty well. We -- they are the biggest distributor of bonds -- retail bonds in Thailand. So that's something that I think we believe there is a lot of value in. But obviously, actually, we need to tackle the issue on the auto finance business side.

[Operator Instructions] Okay. I think that's all the questions we have for now. Dato', I think we can call the meeting to an end.

Yes. I'd just like to thank all of you then. Thank you for staying late. And we look forward, I think, over the next course of a week, I think we will probably meet up with some of you actually to go through this in further detail. But if you have any further questions, please reach out to Steven and Khairul. Sorry, another question?

Can we take one more question, if you don't mind? There is one question from [ Tze Chua ]. Are you on the line, [ Tze Chua ]? Sorry. I think he has left.

So with that, thank you very much, everyone, basically for joining us today. Look forward to basically seeing you in basically in the next Q.

Thank you.

Thank you. Ladies and gentlemen, that concludes our briefing for today. Once again, thank you for joining us. We wish you a very good evening ahead. Thanks.