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

Please be informed that this briefing is being recorded. [Operator Instructions] At this juncture, I would like to hand over the briefing to Dr. Abdul Rahman Ahmad and Khairul. Dato', over to you.

Thank you, Stephen. Firstly, let me thank all of you for your kind patience and joining us on a Friday -- late Friday of a long weekend. Really appreciate you guys making the time to stay and join us basically for this analyst briefing. So let me start by saying that we had another very positive quarter, very strong start to the year. Our operating income grew 4.7% quarter-on-quarter and close to 13% year-on-year from higher NII and NOII which is attributable to NIM, what we call NIM recovery and expansion as well as strong capital markets and investment-related income. NII rose 2.5 bps -- 2.5% quarter-on-quarter for 3 bps NIM expansion despite muted loan growth, but improved close 7.7% year-on-year, underpinned by strong loans and security growth despite lower NIM. However, that's total NIM. Later, Khairul will show that we are starting to -- or we will start this quarter to show our NIM banking book. And on our NIM banking book, which means that it excludes treasury and markets impact the NIM on the [ making ] book recovery on a year-on-year was also positive. At the same time, as I mentioned, gross loan grew 7% year-on-year from all countries and segments. And particularly for Malaysia, this is despite, as I said, our clear strategy that we adopted for more than, I think, more than 1 year now, which is a more deposit-led strategy rather than a loan-led strategy. So that has continued to remain quite positive, even though later, Khairul remarked, we probably expect some more duration on the loan growth because we've been pricing up or protecting our asset yield as part of this deposit-led strategy. Deposits actually grew 1.6% quarter-on-quarter and 8.2% year-on-year, largely driven by CASA growth. So this is another thing that we are very happy about. As you know, we've been talking about CASA, CASA, CASA is our core strategy. CASA grew close to 1% quarter-on-quarter, but more importantly, 16.8% year-on-year. As such, our CASA ratio improved considerably at 40.8% from 37.8% in March. Our cost-to-income ratio improved despite the inflationary pressures. I'm sure most of you have read through all the other banks' report, all of us have been faced inflationary pressures. So because of that, our year-on-year costs went up close to 9%, but it is lower 2.8% quarter-on-quarter because of the absence of accelerated debt accruals that we did at the end of the last year. With a strong operating income, very pleased to report that our cost-to-income ratio improved to 45.3% as the stronger top line delivered a very positive JAW. The other element that we are very happy to report is that continued improvement in asset quality indicators. Our loan loss charge remains steady at 35 bps. So in our total provision, even though slightly up or up 26% quarter-on-quarter and 13% year-on-year, it is very much contained. More importantly, what I call resilience or asset quality resilience metrics, improve our GIL and loan loss coverage improved, our GIL now is down to 2.6%. For some of you recall that it was in much higher part of 3s and our loan loss calculations is enhanced to 101%, respectively, as at March. Because of all that, the improvement in operating income, which exceed effectively OpEx, so we have a positive PPOP and contain cost provision. Our net profit grew strongly, 13% quarter-on-quarter and close to 18% year-on-year. This, and I'm very pleased to report that our first quarter 2024 ROE is at 11.4%. I think this compares to 10.3% compare to last year, and it shows that we are firmly on track to our ROE target for 2024 between 11% to 11.5%. And all this is happening whereby our CET1 continues to accumulate. It rose 50 bps quarter-on-quarter and 70 bps year-on-year to 15%. I don't think CIMB ever had our CET1 ratio reaching 15%. It just reflects the further -- I think we are able to deliver the ROE despite the capital buildup and later we'll talk about, I guess, this allows for -- potentially for us to look at capital optimization going forward, subject obviously to regulatory requirements or feedback as well as other factors. So as you know, very positive. I'll pass to Khairul to give the detailed analysis of the results, and I'll come back to talk to you about the progress of our Forward23+ past in our final year of execution.

Thank you, Dato'. So on the key highlights of what Dato' was mentioning in terms of the drivers of that, like what Dato' mentioned in terms of our robust revenue growth on a Q-on-Q basis, that's really driven by all our key operating markets and Malaysia on a Q-on-Q basis showing very good trajectory or recovery Q-on-Q. The year-on-year, I can see the strong growth is recorded in Malaysia and Singapore with Singapore, both on the top line NII and NOII and Malaysia mainly on NOII. With a strong growth in revenue. We are recording a good positive JAW improving to 45.3%, a very strong Q-on-Q improvement in terms of our CIR. Given our CASA-led strategy, we are recording very good growth on a Q-on-Q and year-on-year basis. The main driver there, you can see in terms of Consumer growing very well on a Q-on-Q basis and also on a year-on-year basis. And because of our deposit-led strategy, we are also growing aggressively our [ FTEs ]. And because of that our CASA ratio has come off slightly by 40 basis points. Our asset quality is sustained at our good -- at good levels in terms of credit costs, well within our guidance of 30 to 40 basis points. You can see some of the other asset quality indicators is also showing a good improvement. Our gross impaired loans ratio has come down to 2.6%. And now, our allowance coverage has crossed the 100% mark. On to Slide 5 in terms of our profit by segment. On Consumer Banking, on a year-on-year basis, that has come down by 10.3%, but this is mainly due to the absence of overlay writeback that was recorded in the first quarter of 2023. On a Q-on-Q basis, also a slight moderation on the PBT line, despite the top line growing very well at 4% Q-on-Q. This is offset by higher ECL on a Q-on-Q basis. Commercial Banking recorded a very good growth, both on a year-on-year and Q-on-Q basis, and this is mainly driven by the ECL writeback that we recorded this quarter. Wholesale Banking, very strong and robust growth year-on-year and Q-on-Q. On a year-on-year basis, this is driven both by very strong NOII and also lower ECL, whereas on a Q-on-Q basis, this is mainly driven by the positive NOII. CBA & Group Funding, the good growth, very strong growth on a year-on-year basis is mainly driven by both NII and NOII, whilst on a Q-on-Q basis, this is driven by strong NOII, and this is partially offset by higher ECL. On Slide 8 (sic) [ Slide 6 ], highlights of the PBT by country. Malaysia, good growth on a year-on-year basis driven by both NII and NOII. This is partially offset by higher ECL. On a Q-on-Q basis, very strong, very good growth and recovery on the top line growing at 1.9%. This is partially offset by higher provisions. Indonesia, good growth on a year-on-year basis driven by lower ECL. On a Q-on-Q basis, also good growth, driven by higher top line, both NII and NOII, partially offset by higher ECL. In Thailand, a significant contraction on a year-on-year basis, and this is mainly driven by lower fees and trading. On a Q-on-Q basis, a very strong recovery in terms of PBT in Thailand. This is mainly driven by a better NOII and also lower ECL as we took some conservative provisioning during the fourth quarter last year. Singapore, very strong growth, driven by our top line for both year-on-year and Q-on-Q. And on a Q-on-Q basis, this is further contributed by lower ECL and also lower OpEx. I'll go into the details of the P&L on Slide 7 on operating income. Overall, what we highlighted, very strong growth Q-on-Q and year-on-year, both on NII and NOII. So if you look at NII, the growth of 2.5% is really driven by our overall margin expansion of 3 basis points Q-on-Q. And if you look at that line chart is what Dato' mentioned, where we are disclosing the breakdown between the Group NIM and the banking book NIM, which is the NIM, excluding T&M. So you can see a bigger driver of that is our banking book NIM as spending by 10 basis points. And the breakdown between -- within the countries, you can see Malaysia improving our reported margin by 6 basis points. And this is mainly driven by a lower cost of funding of 6 basis points. And another contributor to that margin expansion is also the Wholesale funding rates normalizing due to the seasonal pickup on the rates on Wholesale funding in the fourth quarter. Indonesia, as you have already seen, the big significant improvement in margin is really driven by loan yields are picking up. In Thailand, on the other hand, are partially offsetting the margin expansion in the other 2 countries is mainly due to the cost of funding pressure and also the full quarter impact from the lower yielding bonds that we started buying in the fourth quarter. Singapore, the slight margin contraction is driven by the shift from CASA to FDs as we start repricing up our FDs. So on a year-on-year basis, NII expanded by 7.7%, mainly driven by asset growth, offsetting some of the margin contraction of 8 basis points. The main driver is in Indonesia. We can see Indonesia's margins contracting by about 51 basis points. That's mainly driven by the fact that the loan yields didn't catch up in terms of repricing up as much as how the cost of deposits was catching up in terms of repricing up. Malaysia, I will lie to highlight that you can see that the contraction has significantly narrowed now to minus 1 basis points. On NOII, the good growth Q-on-Q is mainly driven by the capital related income growing at 25%. Offsetting that partially is the contraction in fees and other income category. Fees is mainly the driver where the fee income in the fourth quarter was exceptionally high, driven by Wholesale Banking in Singapore and also in Malaysia. Despite the fact that even in the first quarter, we had a very good pipeline in terms of fees coming through, but fourth quarter was exceptionally high. Other income offsetting that weakness in terms of fee income, we had a lumpy NPL sale during the first quarter of about MYR 110 million versus last quarter of about [ MYR 20 million. ] On a year-on-year basis, both fee income and capital markets and investment-related income was strong. On the fee income and other income side. Of course, we had the Niaga NPL sale during this quarter, which was higher than last year. Also in terms of the Consumer Malaysia fee income that picked up nicely this year, driven by wealth management and bancassurance fees. On OpEx on Slide 8, is lower Q-on-Q, and this is mainly due to the normalization of the high Q4 base due to the seasonal Q4 accruals. And also we had some one-off restructuring costs in Wholesale Banking last quarter. If you look at it from a year-on-year basis, what Dato' mentioned, we are experiencing, similar to other banks, inflationary pressure, and this is mainly coming from personnel costs and this is a reflection of our accruals on the potential new collective agreement negotiations and also reflecting the full head count buildup that we did in 2023 impacting the first quarter this year. In addition to that, also given that Singapores are robust our revenue and volume growth, we are also experiencing a personnel cost pressure in Singapore. Technology, that continues to be a driver, growing in that low teens of level, marketing at that also higher level due to mainly to the variable costs related to Philippines and also picking up our marketing spend in Malaysia. But despite this inflationary costs because of our very strong top line growth, you can see our cost-to-income ratio improving to 45.3% versus last year in the same quarter of 46.9%. Moving on to provisions on Slide 9. In terms of our credit cost here for this quarter is at 35 basis points versus last quarter of 31 basis points. So it's still sustaining that relatively normalized levels of credit costs. Within the breakdown, our recoveries has -- is lower this quarter, and that's mainly due to a significant recovery last quarter in the Malaysian aviation sector. On the non-retail side, that has also come down, and that's mainly due to lower corporate provisioning in Indonesia and Singapore. On the retail side, the current quarter is more of the normalized level. Last year, first quarter, we recorded some overlay writeback and also lower underlying Indonesia consumer. On a Q-on-Q basis, we had some model adjustment in fourth quarter, and this is due to us reflecting the improvement in terms of our curates. On asset quality ratios, on Slide 12 (sic) [ Slide 10], you can see our credit costs are trending nicely. Similarly, in terms of our gross impaired loans ratio. We do expect going forward in the coming quarters, to continue with this gradual improvement in terms of our GIL. Our allowance coverage, like I mentioned, has now crossed 100%. We are looking to maintain the sort of 90% to 100% loan loss coverage levels. On Slide 11, on gross loans, with the momentum still remains good. The main driver on a Q-on-Q basis is on the Consumer Banking side and also Commercial Banking. You can see, however, on the Wholesale Banking side, that contracted by 90 basis points Q-on-Q and that is a reflection of our selective pricing strategy to ensure that our yields are maintained, and this is mainly coming from Indonesia and also Malaysia. On a year-on-year basis, good growth across the board, in particular, Consumer Banking in Thailand and Singapore. On the Commercial Banking, that's mainly driven by Malaysia. Breaking it down by country, the Malaysia growth is mainly driven by Consumer and Commercial. In Thailand and Indonesia are both driven mainly by our Consumer, whereas in Singapore, the main driver is on the nonretail side. Moving on to Slide 12 on deposits. If you look at the breakdown, you can see that our deposit-led strategy also includes growing our FTEs, in particular in Singapore and also Indonesia. So our CASA has grown very well at 90 basis points, and this is mainly driven by Indonesia and Thailand and also Malaysia Consumer, where the growth has been good at 4.2% on a Q-on-Q basis. So that also has contributed to the strong growth in Malaysia at 10.4% year-on-year, where the non-retail is growing higher than that level, whereas in Consumer still going very well on a year-on-year basis in Malaysia at 7%. In Thailand, the main driver is on the retail segment, whereas in Singapore, it's really across all 3 segments. Because of the high fixed deposit growth, our CASA ratio is slightly down but still relatively at a good healthy level of 40.8%. Moving on to Slide 13. If you look at our capital ratio, that is trending well and that's mainly driven by the good profitability trajectory during the quarter. Also contributing to that is favorable FVOCI movement and low RWA consumption during the quarter. Slide 14. Going into the performance by segment. Firstly, on Consumer, the slight contraction on a Q-on-Q basis, you can see despite the very good growth in terms of our top line, that is offset by the higher provisions due to the fourth quarter having that model adjustment on the improved cure rate. On a year-on-year basis, similarly, we have a very robust operating income growth, but this is offset by the higher ECL due to the overlay writeback that we recorded last year and also the underlying in Indonesia being slightly lower last year. So overall, in terms of our loan growth, like I mentioned, that's mainly driven by Thailand and Indonesia, whereas in Malaysia that was growing below that level at about 6%. Commercial Banking on Slide 15, in terms of the growth of the PBT, is mainly driven by ECL, the ECR writeback that we recorded during the first quarter of this year. I think it's good to highlight as well in terms of NII, the good growth on a year-on-year basis is really driven by a very good CASA growth in Commercial Banking. The driver in terms of our balance sheet is mainly -- balance sheet growth is mainly coming from Malaysia and Singapore. Wholesale Banking on Slide 16, the very good growth in terms of PBT. You can see the noninterest income growing significantly at 30.8% Q-on-Q. And also on a year-on-year basis, 43.3% is really driven by the very strong capital markets and investment related. If you look at the Wholesale Banking growth, very good on a year-on-year basis, that's mainly driven in Singapore, whereas in Malaysia, the growth is slightly weaker because of our strategy on being selective. Malaysia is growing at 2% year-on-year. On CDA & Group Funding on Slide 17, good growth on the bottom line Q-on-Q are mainly driven by NOII. The contraction on the NOII is really driven by the one-off gain that we recorded in the fourth quarter given the completion of CGS. On a year-on-year basis, a very good growth, driven by robust top line growth. This is, however, partially offset by the higher ECL. So if you look at some of the indicators on CDA, good trajectory on Touch 'n Go Digital on the total registered users and also annual transacting users. Similarly, in Philippines as well, the deposit balance and number of customers is also projecting well with our number of customers now reaching 7.8 million in Philippines. As highlighted during the CDA Investor Day, we are providing more information on our CDA business. And going forward, we will continue to enhance this disclosure to provide more color on this business. You can see on Slide 18, some of the additional disclosures that we're making. Firstly, if you look at the left-hand chart, this is something that we showed at the Investor Day where we are trying to disclose what is the uplift to the Group ROE from the narrowing of the CDA losses. So for this quarter, the narrowing of the CDA losses is contributing a 9 basis point expansion to the Group ROE. So cumulatively, over the years, CDA has contributed to the 60 basis point ROE expansion. Drilling down to Philippines is really a very good exponential growth in terms of the revenue. And you can see in 2023, given the scaling up of that business, the strong revenue growth really contributed to the breaking even of Philippines in 2023. That positive trajectory continues. In the first quarter, you can see recording a good level of MYR 168 million. Lastly, on Islamic Banking, on Slide 19, moderate good growth in terms of PBT at 1.8%, driven by lower ECL, the strong growth on a year-on-year basis is driven by a robust net financing income growth. And if you look at the Islamic financing as well, continuing its good trajectory of 14.2%. So that's the end of the financials. I'll pass the presentation back to Dato'.

Thank you, Khairul. So let me start on -- this is obviously our final year for our Forward23+ strategic plan. You're very familiar with the strategy. So Slide 22. Good report. I think we are projecting very well for the -- what we set out 4 years ago. More importantly, in terms of shareholder value creation, obviously, we benefited from the market rally for KLCI, but very happy to note that I think the recognition being given to CIMB, our annualized TSR for 3 months is close to 76% but more importantly, from the day that I joined, we've been able to deliver now close to 43% annualized TSR per annum. So very happy that I think we've been able to create significant shareholder value to all our investors. Next slide, in terms of asset composition. This one, I think, is -- we've completed all our portfolio reshaping. So now it's just continuing the strategy, focusing on the Consumer, on the SME business. So that I think continues to also actually done in terms of our -- what we really done in terms of portfolio reshaping. In terms of digital reliability, continues to improve, even though in we take note of the incident that happened in Malaysia on -- in April, but that we believe effectively is really something that is third-party related, are very comfortable with our technology reliability. Our CapEx, I think we are disclosing, we have a target CapEx of about MYR 900 million this year. If you recall, last year, the budget was roughly about MYR 1 billion. We tend to spend roughly about 70% of the planned CapEx. But this year, I think the first quarter has been low, but the main message that you would like to say, we are probably at the, what we call, tapering stage of our CapEx investment. So we do expect our technology CapEx to taper off following the -- if you look at the trajectory for 2023, it's already off the peak. And that decline or tapering will continue to actually to happen in 2024. With that, if you look at our TSR journey, and we've been reflecting back from 2019. So as you know, we grew our ROE from 8.5% in 2019, if you exclude all the EI. But then we have been able to deliver in terms of the key Forward23+ initiative and to where we are today, which is 11.4%. The one thing I would like to highlight that in terms of -- there were dilution, and we've been able to deliver this target despite the capital accumulation and the NIM compression. So just for your information, our first quarter '24 ROE would have been 12.4%, if our CET1 ratio remain at 13.5%, I think making us probably #2 in terms of total profitability. In terms of where we are, I think this was a question a lot of you post last year, what is our path towards keeping the target for Forward23+. So happy to report. I think we are now in terms of the higher level -- sorry, the 2024 target at the top end, which is 11.5%, nearly 10 bps below. The real driver, I think we mentioned it to all of you, it's really about the deposit-led strategy, really having NIM recovery, NOII expansion, very happy that our dream seems to be coming through. Our NII, as mentioned just now year-on-year after a tough, tough 2023 grew at 7.7%. So I think that's going to be a big driver to maintain that part that I think will really contribute in terms of hitting our ROE target for 2024. Costs, obviously, now we need to mitigate it. And I think the inflationary pressure is there for all players. So we really going to embark upon another cost identification, what we call program, but this is probably more towards beyond Forward23+ strategy for 2024. We just going to be very, very careful in terms of managing our costs, and the idea is really to try to see where we can cost optimize. Obviously, I think the contribution and probably [ think it will ] spend this has probably a year about Malaysia in [ theory ] because if you look at the Malaysia results, it has improved and as well as Singapore. Obviously, Khairul mentioned about digital asset turnaround, credit cost, as I said, remain muted. So we are comfortable with that and obviously provide us with our strong capital CET1 ratio, continued capital optimization plan. For sustainability, I -- we continue to be a leader and shaper in this particular area, particularly highlight that we publish our sustainability report. We are already the Top Lead Arranger for ESG Bonds and the CIMB operations in Singapore already achieved net-zero Scope 1 and 2 in terms of emission. So we're very happy with the progress that we are making. And I think in the next probably month or so we'll come our with a further announcement relating to this area. So yes, so final remarks, I think a very, very positive start for the year, underscored by robust top line expansion reflecting our deposit-led and NIM recovery strategy, good CASA growth, reflecting that it's working in terms of our enhancing deposit and CASA franchise as well as what we call contain provision. However, a bit of a cautious outlook. We continue to be -- I like to think cautious, particularly with the global economic headwind, the uncertain geopolitical tension. But more importantly, I think most of you are aware, the likelihood of prolonged elevated interest rate and competitive operating environment, particularly in Indonesia, whereby I think the bank and not just us but all banks is facing challenges to pass on the higher cost of deposit to the customer. So I think for Indonesia itself, I think we are slightly more cautious particularly in terms of the NII line because we do see NIM compression happening in that market. Now if I mean that, I think very unfortunate circumstances with the first quarter result, I think we are confident on meeting what we set out last quarter, our 2024 target, particularly on the back of improved Malaysia and Singapore performance. We remain focused on competing. We know that we are -- we can see the finishing line in terms of Forward23+. So we are focused in terms of completing that well and continue our emphasis about strengthening our deposit and CASA franchise, our deposit-led NIM management strategy, driving NOII expansion, particularly coming from Wholesale. So you can really see some of the results in the first quarter, whereby our one-client approach, I think, is bearing fruit and particularly in Corporate Banking performance. We will continue to focus on digital and operational resilience. Before I end, I'd like to give a short update on our succession. As you know, I will be leaving CIMB on the 30th of June. 30th of June, we were hoping -- in fact, we delayed. Part of the reason why we announced so late, I was hoping that we could announce our successor by today so that my successor can join this analyst briefing. Unfortunately, as I understand it, regulatory approval probably take maybe in the next week or so. So that will be announced. And all I can say, obviously, we can't name the person yet. But it's a candidate for what we call a continuity of strategy as well as continuing to focus on execution. So that I believe will be -- will continue to bode well for CIMB. So I'd like to end, as you know, it's going to be my last analyst briefing with all of you. It's a bittersweet moment. I've really enjoyed all our interaction and really thank all of you guys for the support. I hope you've seen over the last -- the work that we've done over the last 4 years that in terms of focus, in terms of execution of strategy has been -- has worked. And I'm pretty sure -- I'm very, very confident that the my successor well as the leadership team that we actually have with CIMB will continue to be able to -- firstly, to complete Forward23+ well, but more importantly, I think it will share with you the plan for beyond Forward23+ and in terms of where I think the next phase of growth of CIMB is going to be. So thank you very much. Happy to take your questions on this, and I will thank all of you again at the end of our briefing today. Thank you.

Thank you, Dato' and Khairul. We can move now to the Q&A session. [Operator Instructions] Let's take the first question from Ben from Macquarie. Ben?

Dato', I hope you can hear me clearly. First off, thanks a lot for the hard work that you've put in. It's been a pleasure of working with you from this side of the business. I would like to ask a couple of questions, most of them around loan growth, NIMs and the capital management. So the first thing is that your slower loan growth makes sense as long as the NIM is still expanding, but there must be a ceiling to how much you can raise the NIMs, right? And as you rightly pointed out, I think there's still a bit of cost pressure coming through. So I just want to understand what you think about the ceiling for your NIM expansion is? And what sort of the minimum loan growth you kind of need to extract from the business?

I'll pass the detail to Khairul. But overall, if you think about what was industry NIM before COVID to now, I think Malaysia -- we are talking about Malaysia here rather than any other country, specifically in Malaysia. I believe the industry has lost close to 20, 25 bps, yes? So -- and I can't quite understand why we should lose that SME industry unless as I say, unless there is a reason behind it. So when you ask the question, how much we can recover? And I'm not talking about just CIMB, I'm talking about the industry, I do believe that's the level, right? I mean, if we go back to 2019, we can recapture back as an industry, the NIM compression. I think for the industry, it's better. Obviously, I think this will depend on industry dynamics, competitive, I call it, action by everybody. But that's where I believe we should go back to at least the potential of going back to unless we believe that structurally, Malaysia NIM will come down or has come down 10 bps, 15 bps finally a steady state. So that's roughly where we see in terms of the -- for what I see in terms of the NIM potential NIM ceiling that you refer about. Yes, there is a trade-off. I fully understand the part and as I mentioned to you, that we took this decision a year ago or more than a year ago to focus on yields rather than, call it, volume. The good news, I think, at least first quarter, the loan volume remains relatively strong in Malaysia. I think we still grew 5% as Khairul indicated. We do expect perhaps it will moderate down a bit because part of the 5% obviously was stock that we built in the prior year. But we trust our team. Our team, we believe that in terms of competing in the market, our sales team on the ground, particularly on the retail remains a very -- what we believe is very, very strong in terms of best-in-class of this organization. On the Wholesale side, we just need to be disciplined. I think we just -- we'll have to keep saying no, if the deal doesn't make sense. And I think we built in enough rigor that idea is not to actually to compete. But what we call compete or drive more on NOII, drive more on the deposit, drive more on the CASA. So roughly, that's where we are, yes, there will be a time whereby if we revert back to what we call steady-state NIM, that we then need to actually to see where the growth is going to come from in terms of volume. But this is what we think -- believe the beauty about CIMB, unlike a lot of other banks in Malaysia who are generally a one-market player, CIMB has the benefit of, I'll call it, [ a span ] strategy. 40% of our business is outside Malaysia. So if Malaysia effectively hits, we need a bit more volume growth, then obviously -- and there's a constraint towards that, that's where we believe our other markets, whether it's Singapore, Indonesia, Philippines coming very, very strong in terms of what we call revenue growth, we'll have to actually to then present ourselves effectively as what I call a balanced growth -- balanced growth stock or balance growth proposition. So that's roughly how we think and have built our strategy. And I think, as you can see, and we believe there is still scope towards delivering value, call it value, not necessarily just pure revenue growth towards this strategy.

So if I just may add, in terms of balancing the pricing and volume trade-offs, right, based on our current outlook and based on the current pricing dynamics in all the various countries, we are still confident, right, despite us being very selective on the corporate side, we're still confident of hitting that loan growth target of between 5% to 7%, right? However, if the market starts to turn into something a bit more competitive than what it is today, like what Dato' mentioned, we are more than willing to walk away and we are willing to sacrifice our loan growth target to ensure 2 things. One is in terms of ensuring that our [ railroad ] for the particular deal is sustained, and it is not ROE-dilutive going forward.

I just -- I mean, it caught my eye that your sequential loans growth is actually quite weak Q-on-Q. Just if you want to hit your 5% to 7% target, you're going to really pick things up going forward, I suppose. And so [ tying ] in respect to capital, if you're at 15% CET1 right now, could we expect if your RWA consumption is less aggressive, this is a good opportunity to increase your payouts more aggressively? How should we think about that trade-off?

Yes. So firstly, in terms of the sequential loan growth, right? So I guess you're referring to overall in the fourth quarter, we grew at 2.1% Q-on-Q, and that momentum has come off, right, to 30 basis points growth Q-on-Q, partly, right, because of our pricing strategy in Wholesale Banking because the main driver of that moderation in momentum is mainly the contraction that we recorded on Wholesale Banking. And that's really driven by 2 things. One, some of the lumpy repayments and some of the drawdowns that are impacting the Q-on-Q sort of momentum, but secondly, as well, in the fourth quarter last year, we ramped up significantly in terms of the low-yielding loans in Niaga. So that was really short-term loans coming off in January as well. So actually, the 3 components. One is our pricing strategy. One is the timing of the repayments and drawdowns [ and ] the seasonal pickup on loans in the fourth quarter in December in Indonesia last year. In terms of linking it to our capital trajectory, right? So first quarter was a very good number, right? But with our confidence in hitting the loan growth target of between 5% to 7% by year-end, there will be a pickup in terms of RWA consumption. But despite that, we are still very positive on our capital trajectory. And that does give us room to consider any one-off capital optimization because we'll continue to sustain in terms of the -- our guidance of the BAU payout for 2024 on 55%, what we will consider given a continuing positive trajectory on capital is really on the one-off.

Our next question comes from Peter Kong from CLSA. Peter?

Just a couple of questions. I'd like to understand a bit more. Number one is on the CET1 improvement, which seems to be having some momentum. I also maybe just want to understand how much of the CET1 improvement is driven by the improvement from your impaired loan side? Because compared to last year, it looks like your impaired loan has come off from the 3% level, as Dato' mentioned, to the 2% levels. Is there -- is this still a low-hanging fruit, as in whether if the GIL ratio continues to improve and you can have more write-offs, is this where your CET1 could also get some uplift? Correct me if I'm wrong.

Yes. So a small driver there, but not a significant driver. The bigger drivers of the very good first quarter trajectory is really driven by the low RWA consumption during the quarter. So that's number one, right? Number two, it's a very good sort of profitable growth during the quarter [ of 11.4% from 10% ]. Lastly, we did have a bit a small model-related of enhancement [ from our rating but ] on the corporate side, which gave us some RWAs of benefit during the quarter.

And I think my second question relating to this area is to Dato'. Dato', I think in the earlier part of your presentation, you made a passing remark that it sounds like you are quite comfortable with the 15% CET1. And I think you said potentially able to allow CIMB to consider some -- is it -- did you say capital optimization? And subject to regulatory feedback and other factors, would you be able to elaborate on what is on top of management minds?

Yes, I think it's consistent to what Khairul mentioned before and what we've been saying in the past, right? And again, I think we keep referring to in the pre pandemic. I think Malaysia is steady state -- at that point of time, the steady-state capital CET1 amongst spend was between 13% to 14%. And because CIMB was really close to like at the low end of that 13%. Now obviously, during the pandemic, we then move up to this 14% to 15% mark. And we then move towards that particular level. Now we are really at the high end of that 15% mark. So obviously, I think on our side, we are focused on that. We know that capital optimization is a big value driver to ROE. There are opportunities, as Khairul mentioned, and then we would like to see or would like to do to what we call capital optimization initiative. Again, I think this is dependent on regulatory review as well as what I think the other players do as well as setting the outlook on future things, which obviously, I think we need to consider. But as a principle, I think we've been very open and transparent in the past that there are opportunities and the regulatory environment allows the capital optimization is an instrument that we would like to actually use to further improve ROE.

My last question is in the area of how you're managing your asset growth. Quarter-on-quarter, the loans growth wasn't that strong, but actually the treasury asset side did grow in my calculation about high single digits. Just looking at your [ VTPL ] at the OCI. I was just wondering, is this somewhat technical to sort of a position for potential gains depending on the movement of the yield curve. Just wanted to understand the move in this areas.

Some of it is tactical due to that. But another driver as well in some of our other markets, there have been liquidity that we have garnered during the quarter. Some of the increase in some of those is related to giving us some uplift in terms of NII. Another component as well, market has been -- during the first quarter, we did have some mark-to-market gains as well during [Technical Difficulty] the that balance sheet number growing. So there's 3 components to that growth.

So particularly for the Singapore market, our drive to get CASA [ debt ] deposit has been working extremely well. So effectively, you have that extra liquidity, if there's no, I call it, loan yields that basically makes sense. I think that's where we actually deploy using securities. But generally, they are all short duration. We fully understand all of that. And we earn NII and basically -- makes sense, basically, for this. But that is what we think about. I think we are able to actually to -- while we are fully focused on deposit-led strategy, right? The asset side of it, we look at it that we should only do things when it makes sense. When it doesn't, that's where you actually deploy the excess liquidity in terms of short-term securities and to make additional income.

Our next question comes from Harsh Modi from JPMorgan. Harsh, are you there?

Yes. Thanks, Dato' for the call and many congratulations on a bigger role, and thanks again for very significant value creation where to see a big large-cap bank being turned around so well and relatively short period of time. So -- and it shows in the TSR. So thanks again. I just had one question on Indonesia. There is significant tightness of liquidity in that market, both the stock and flow of liquidity. Margins have held up well this quarter, but Indonesia is 1/4 of your balance sheet. So in course of next 3, 6 months, should we expect significant NIM compression at a group led by Indonesia? And what are the various drivers of NIM, both on cost of funding materials in course of the next few quarters?

Yes. For Indonesia, you are right, Harsh. I think earnings unit, 3 years ago, the turnaround of our group was led by Niaga. Niaga had a very, very strong, I call it, performance. This year, Niaga, because of the industry is facing what we call NIM compression, it will be more challenging. And you are right, if I clearly -- a big part of it is liquidity, even though I have to say because of our focus on deposit, the cost of deposit increase in Niaga is tracking what we call the interest rate rise. So we are not facing what I call Malaysia situation 2 years ago or last year, whereby the cost of deposit that is spiking up. Even though the Wholesale side, we see, but we have been able to moderate that by virtue of our, I call it, deposit platform, CASA platform that remains strong, particularly on the Commercial segment. I think this was an untapped market for Niaga. It was focused a lot on the Corporate as well as our Consumer side. And as you know, we were descaling the Commercial part. But since all of that has been done, the Commercial side really been focused on the deposit-gathering, CASA [indiscernible]. And we are getting very strong momentum. So on the deposit -- cost of deposit side, we are relatively confident that we are able to track at similar to interest rate rise in Niaga. Bigger issue is really on the asset side, whereby the passing on, unlike Malaysia, whereby you have a unilateral once OPR increase, we can pass it on to the customer, in Niaga, it is customer by customer what we call change. So with that, particularly on the Wholesale and the Commercial side, it's been very challenging to pass on the asset yield increase. So that, I think, is what's compressing margin and will compress margin to -- on Niaga. Now whether it will be significant to actually to dilute the NIM of the group, I think it remains to be seen, but we are still optimistic that Niaga will have at least small NII growth, meaning the decline in the NIM will be offset by some increase in loan. And generally, net-net, we are still NII positive in Niaga. That's what we are seeing about, but it is one element that we need to look at in 2024.

At the moment, we have no other further questions. [Operator Instructions] Yes, our next question, we do have a question from Tushar from Nomura.

My first question is on NOII outlook for the rest of the year. Could you give some color on what opportunities are you seeing? How the trends are likely to be?

Yes. I think there are 3 levers. On the fees and commission is basically retail, I think we are pretty positive because the investment what we call demand have returned compared to the 2023. On the Consumer side, it is positive. Then on the Wholesale side, Obviously, we had a very strong first quarter. I mean, we've been able to actually to transform and rejuvenate our investment bank and Corporate Bank franchise to be able to actually to do a number of what we call market landmark deals particularly in Malaysia. Now that one, I think, obviously, is opportunistic. We need to actually to see whether we can create that level, in effect, create a market for this NOII investment banking fees. Together with, obviously, as you know, we brought in our equities business back into the fold. So that will provide some additional NOII. But the, I call it, the episodic income coming from what we call investment stroke corporate banking is something I think we need to actually to see whether you can deliver every quarter-on-quarter. Our belief probably second quarter will not be as strong as first quarter for this element. Then the third element, of course, is trading income, trading what we call flow income on the treasury side. The flow income continues to actually to be positive, to be strong. and that's our focus. So that's been very good. First quarter started well, and we think that, that momentum will continue. The trading side is a bit of a mix. It's still positive for the year. But countries like Indonesia and Thailand was still -- is below last year. But Malaysia and Singapore offset that. So generally, I think in the first quarter, the trading part of the income, while it contributed to the strong NOII growth was probably, I would call it, was balanced, so I'll call it balanced. And if you are able to actually to continue, then I think we will be able to do so. Of course, as you know, trading income is highly opportunistic and depends on market. And the last component of our NOII, as you know, is NPL sales, which over the last 3 years, we continue to create what we call recurring-like plan to crystallize all our NPL sale. I think that's progressing relatively well. I think we should -- we are confident that we'll be able to maintain what we call the rate of NPL sales relative to last year, and that will provide further continuity in terms of the NOII. So what are we bit unsure of is probably of trading as well as the [ episode ] date investment bank, corporate bank transaction. But as I said, the fees and flow of business seems -- momentum seems good, and we hope that we'll be able to continue for the rest of the year.

Can I also ask on the capital optimization and the one-off factor which you are considering. I mean based on the discussion with regulators, is it possible to consider this for the interim dividend? Because that's when it will give you the reduction in equity base so that your ROE is higher.

We haven't started the discussion with the regulators, right, because we haven't passed the second quarter mark. But if our capital trajectory continues to be good and our positive net capital generation continues to be good, which is based on our outlook, we will have. We will start that conversation with the regulators.

Okay. So basically, this can be considered if the results are in line with your expectations?