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

Welcome to CIMB Group's financial results briefing for the second quarter of 2024, hosted by our CMB Group CEO, Novan Amirudin; and Group CFO, Khairul Rifaie. My name is Steven from the CIMB IR team. You should have received the analyst presentation and financial statements via e-mail from the Investor Relations e-mail. If you have not, the documents can be found in the IR section of our website at cimb.com. Before we begin, please be informed that this briefing is being recorded. I would like to encourage everyone to include your name and company on the Teams app to allow us to identify you. [Operator Instructions] At this juncture, I would like to hand over the briefing to Novan and Khairul. Novan, over to you.

Thank you, Steven. My name is Novan Amirudin, and I'm extremely honored and privileged to be able to discuss our first half '24 results with you today. It's the eve of Merdeka here in Malaysia. Thank you very much for your time. And I'm pleased to announce that it's another solid set of results for the first half of 2024 for CIMB Group. Net profit is up 14% year-on-year to MYR 3.9 billion, driven by a number of factors. We continue to benefit from our ASEAN portfolio serving a diverse client segment, whether is it from the underserved to the high net worth, SMEs, the large corporates as well as governments in the markets that we operate. Our first half '24 revenue grew strongly by about 8.7%, and this is driven by both the NII and NOII engines. Let me first address the NII. With regards to the NII, the growth is driven by both NIM expansion as well as loan growth. With regards to NIMs, we continue to expand our NIMs in the second quarter by 4 basis points after a 3 basis points' NIM expansion, which we've seen in the first quarter. This is a good development because if you recall, last year, the Malaysian banking industry experienced quite severe NIM compression, very intense competition, and we decided to pivot our strategy to be more focused on deposits and more discipline on pricing rather than going after volume and market share. We're seeing the benefit coming through from this pivot in strategy, and I'm proud to announce that our NIMs have expanded by 7 basis points in the first half of this year. Now loans also grew despite us being a lot more disciplined with regards to NIMs, and I'm proud to mention that our loans grew 4.2% year-on-year from all segments and countries. We will do a deeper dive into our loans growth by respective business units later in the presentation. Our loan growth was funded by growth in both deposits and CASA. Deposit, as a whole, grew 2.7%. But CASA, as a result of our deposit net strategy, grew 9.2% year-on-year. CASA ratio is maintained for June '24, and it's now 40.9%. The other engine of our revenue is NOII, and NOII grew a robust 13.2% year-on-year, bringing our NOII ratio to now 31.9% versus the 30-plus percent you saw this time last year. And this is really driven by a lot more fee business, commissions, treasury client sales as well as trading from our franchise. Moving on to costs. Cost-to-income ratio improved a further 40 basis points, and our cost-to-income ratio is now 45.6%. But to be clear, this is not at the expense of tech investments. In fact, tech spend for us is up 9.4% year-on-year. And that will continue to be key, and we'll continue to invest to strengthen resiliency and improve our customer proposition. Moving forward, we do continue to look for ways to optimize costs without compromising our investments. Asset quality further improved, in tandem with a strong economy. In tandem with what you've seen in the banking industry, asset quality continued to improve. Provisions for us declined by 8.9% year-on-year. GIL improved to 2.5%. What's interesting is our loan loss coverage increased to 101.2%. If you recall, last quarter, our loan loss coverage went above 100%, but we're seeing further improvement in the second quarter. As a result of all these drivers, net profit increased by 14% year-on-year, resulting in an ROE of 11.4%. On the back of these results, we are proposing a first interim dividend of MYR 0.20 per share and a special dividend of MYR 0.07 per share for our shareholders. CET1 is now optimized at 14.5% as of June '24. With this, I will now hand it over to my colleague, Khairul, to run through with you the rest of the presentation. Khairul, over to you.

Thank you, Novan, and good evening, everyone. So firstly, on the key highlights on Slide 4, like what Novan mentioned in terms of our diversification that really came through on a Q-on-Q basis, where you can see the very strong growth in terms of operating income in Singapore of 10.4% was partially offset by the weakness on a Q-on-Q basis in Indonesia. On the other hand, if you look at it from a year-on-year perspective, our very robust growth of 8.7% year-on-year is driven by the very strong performance in Singapore and also Malaysia and partially offsetting our -- the weakness on a year-on-year basis in Indonesia and Thailand. And the strong operating income growth of 8.7% year-on-year has translated into our cost-to-income ratio improving by 40 basis points with a positive JAW of 80 basis points. The discipline that Novan mentioned earlier in terms of the loan pricing and also our proactive action on deposits is really coming through in terms of our group NIM expanding further by 4 basis points with that 3 basis points expansion in the first quarter. So cumulatively, that adds up to 7 basis points expansion during the first half of the year. You can see in terms of our asset quality ratios are both in terms of allowance coverage and also cost impaired loans ratio showing a good improvement. And therefore, in terms of the underlying reflection of that is our low credit cost during the quarter of 20 basis points. Performance by segment on Slide 5, the good strong momentum on the consumer business continues. If you look at it from a year-on-year perspective, especially on NOII in terms of wealth and structured products and banking and also some NIM mentioned in consumer banking, really driving the top line growing in consumer banking by 10% year-on-year, driving that year-on-year good performance in consumer banking. The good asset quality from an underlying basis has driven a lower ECL on a Q-on-Q basis, driving the 33.2% growth in PBT. Commercial banking, slightly moderate growth on a year-on-year basis on PBT, driven by moderate growth in terms of the top line. On a Q-on-Q basis, despite the top line continue to be sustained. The lower Q-on-Q PBT is driven by conservative provisioning during the second [ quarter ]. Wholesale banking, both on a year-on-year and Q-on-Q basis, is really a reflection of the strong backdrop in terms of capital market activities and also some loan-related fees. So if you look at it from a year-on-year basis, the strong growth are really driven by treasury and markets. On a Q-on-Q basis, also benefited in terms of wholesale banking on an ECL recovery coming through in Singapore. On CDA and group funding, the slight weakness on a year-on-year is driven by higher [ centrals ] of OpEx at the group funding. On a Q-on-Q basis, a stronger performance driven by NOII. Moving on to Slide 6, highlights in terms of our PBT by country. The backdrop for Malaysia are driving that growth in terms of the 5.3% year-on-year with strong capital markets and also that NIM expansion coming through in Asia, driving a 13% top line growth on a year-on-year basis. Q-on-Q, we had a very strong trading performance in the first quarter that wasn't repeated in the second quarter. We had a relatively tougher June. So the top line was fairly moderate and stable on a [ Q-on-Q basis ], driving that PBT growth slightly weaker on a Q-on-Q basis. Indonesia, our good asset quality and OpEx are driving the resiliency of the Indonesian business still recording a decent growth of 3.9% on the backdrop of the top line that's slightly weakening on a year-on-year basis. Q-on-Q, we had a lumpy NPL loan sale during the first quarter. So on a Q-on-Q basis, the absence of that driving the lower PBT. Thailand, on a year-on-year basis, we have remained cautious in Thailand, given the backdrop so that we are recording a moderate top line. We are also having a higher ECL on a year-on-year basis. The business is, however, stabilizing with lower ECL Q-on-Q, driving the better performance on a PBT basis Q-on-Q. Singapore, overall, Q-on-Q and year-on-year, a very conducive backdrop. And also for CMB specifically, we are recording very good NOII and CASA and deposit traction, hence driving the sustained NIM, driving the both very strong year-on-year and Q-on-Q performance. Deep diving into some of this in further details on Slide 7, starting with operating income. If you look at NII, our growth is good in terms of 1.8%. Overall, if you look at our total operating income, that's slightly lower by 50 basis points, is really driven by that lumpy NPL sale that we recorded in the first quarter amounting to about MYR 110 million. If you exclude that lumpy sale, our underlying operating income is actually up 1% Q-on-Q. If you deep dive into the NII, the 4 basis points margin expansion on a reported basis is similar in terms of our margin expansion ex T&M expanding by about 3 basis points. The driver of that, you can see Malaysia really are driving the margin expansion. That's mainly driven by our cost of funds coming lower Q-on-Q by 2 basis points. The improvement in Indonesia on a Q-on-Q basis is driven by the higher yielding government bonds that we built up, especially in the fourth quarter and coming into the first quarter as well, really benefiting in the second quarter. Thailand, the strong improvement in terms of NIM is driven by 2 things: one, we had some one-off income recognition. But on an underlying basis, we did improve our cost of funding as well in Thailand. In Singapore, we are seeing -- is relatively stable, but we are seeing some pressure in the second quarter in terms of cost of funding. On a year-on-year basis, if you look at our strong growth of 6.7%, driven by both asset growth and our sustained NIM contraction on a year-on-year basis narrowing significantly to just minus 5 basis points. We are seeing good positive improvements in Malaysia, driven by the better cost of funding. Another area is Singapore sustaining at that 1.4% higher level. This is partially offset by Indonesia and Thailand having a higher cost of funds and also, in Indonesia, the inability to pass through some of the higher cost of funding into the loan side. If you look at the NOII on a Q-on-Q basis, trading is slightly -- is down by 8.5%. We had a very good first quarter, in particular for Malaysia. That wasn't repeated in the second quarter, coupled with a very tough June that has somewhat recovered in the third quarter. If you look at it from a fee income and others, on the fee income itself, we are recording very good underlying growth of about 6%. The weakness that you see here is really driven by what I mentioned earlier in terms of the lumpy NPL sale that we recorded in Niaga in the first [indiscernible]. On a year-on-year basis, a very robust growth on NOII at 13.2%, strong growth on trading and FX driven by very positive capital markets and investment related income and also the client franchise business are driving that. On the fee income and others, the fee income side, we grew very strongly at 14% year-on-year, driven by both consumer and also wholesale banking. What's partially offsetting that is that last year in 2023, we had the NPL sale amounting to MYR 100 million more than what we recorded during this first half of the year. Moving on to OpEx. OpEx, the good cost control is sustained in the second quarter where we are seeing the pickup in cost is a reflection of our continued investment in technology, driving that cost higher by 7.1% so driving the overall Q-on-Q growth of about 80 basis points. Year-on-year, that 7.9% growth is driven by technology at 9.4% and also personnel, driven by the headcount; the reflection of the accruals of our collective agreement assumptions; and also some pickup in terms of incentives, in particular in Malaysia and also Singapore given that we are recording very good volumes in terms of fee income on the structure [ of ] wealth management products. Given that we have recorded very strong revenue growth and contains of our costs, we are recording a good positive JAWS [indiscernible]. Slide 9, in terms of provision, it is positive, which is a reflection of the good underlying asset quality. If you look at it from a Q-on-Q basis, we did record a higher recovery coming through in Singapore, close to about MYR 80 million. If you look at it from a non-retail perspective, it's fairly stable. The retail side is coming down. And that is really a reflection coming through from Malaysia and Indonesia. Delinquency indicators in the second quarter continued to either improve or remaining fairly stable. On a half-on-half basis, that higher recovery is a reflection of Singapore. The nonretail side, if you recall, in 2023, during the first half of the year in 2023, we recorded some top-up provisioning of legacy accounts in terms of Malaysia, the leisure sector, and also some new Indonesian infrastructure sector in the first half of the year. So the absence of that is driving our nonretail side are lower. On the retail side, even though delinquency has improved significantly compared to last year and first half, the variance is more to do with the timing of what I will always mention in terms of the reallocation of overlays. The timing of that will create some sort of volatility. But in terms of the underlying itself, that has remained very strong. We can see this on the next slide on Slide 10 in terms of our evolution of our asset quality. In terms of our gross impaired ratio, it has continued to trend down during the quarter. So it has continued to improve. Similarly, in terms of our allowance coverage, that has also continued in terms of its improving trend. Slide 11, our balance sheet momentum. So it slightly picked up compared to first quarter, but still fairly moderate at 60 basis points. If you recall during the first quarter, our clip was around 30 basis points, so slightly picked up, but still very moderate given our very disciplined and tactical approach in wholesale banking. If we look at it from a commercial and also consumer banking, our engines still remains strong, both -- and that is mainly driven by Malaysia and also from a commercial banking perspective, Singapore. On a year-on-year basis, strong growth on consumer and commercial are driven by both Malaysia and Singapore. Our wholesale banking are moderate at 1.3%, driven by our tactical strategy and pricing discipline in Malaysia. So if you look at it by country, that 4.8% within Malaysia, consumer is growing at 6% year-on-year. Commercial banking, mainly driven by SME, is growing by about 8%. In Niaga, at 5.9%, as you've seen, that growth is really driven by SME and also the auto segment. In Thailand, the 3.9% growth year-on-year is driven by consumer, whereas in Singapore, the growth is mainly driven by the non-retail side. Moving on to deposits. We did some liability optimization on the wholesale funding side, and that is really driving the deposit down lower on a Q-on-Q basis, and that reflects -- that is reflected in the wholesale banking coming down at 4.6%, but also partially contributing to that. You can see our CASA coming off slightly by 1.1%, and that's mainly driven by the slightly volatile wholesale banking CASA side. On an underlying basis, if you look at our consumer, Thailand and also consumer Singapore on a Q-on-Q basis, that continues to grow well. Commercial Malaysia during the second quarter picked up slightly compared to a slightly weak first quarter. So if you look at it from a ratio perspective, we have managed to pick it up slightly and maintained at a sustained high level of 40.9% despite some of the challenges that we are seeing on the wholesale CASA side. So if you look at the growth, we are recording very good growth on an overall year-on-year basis across the countries, in particular in Thailand and also Singapore, in more -- the main driver being on the consumer side in those 2 countries. Slide 13 to highlight what Novan mentioned in terms of where we are at in terms of our dividend. So we have increased our first interim dividend to MYR 0.20. As part of looking at how our capital -- positive capital generation in the second quarter, we decided to announce the one-off special dividends to optimize our capital levels, which you can see in the subsequent slide, it still remains very strong. On Slide 14, our capital level is at 14.5%. And in terms of our liquidity ratios, that's well above the regulatory requirement. If you look at it in terms of our performance by segment. Firstly, on consumer banking on Slide 15, very strong growth of 33.2% or PBT driven by very strong NII due to the margin expansion, but we have also recorded a lower ECL, both from Indonesia and also Malaysia on a year-on-year basis, a very good growth driven by both NII and NOII. In terms of the growth on loans, that is mainly driven by Malaysia, growing at 6.3% and Thailand growing at 8.3%. Commercial banking on Slide 15, growth are being lower, and that's mainly driven by our conservative provisioning on ECL. Our top line was fairly moderate, driven by moderate NOII growth. Year-on-year moderate growth in terms of the PBT driven by higher expenses. But provisions, however, is significantly lower on a year-on-year basis. The growth in terms of loans, the underlying is really driven by Malaysia growing very well at 8.2%. Singapore coming from a low base, growing very strongly as well at 17%. Wholesale banking in terms of the Q-on-Q performance, strong growth but we did see some weakness on NOI, a reflection of the very strong first quarter of trading and FX, coupled with the first quarter, the NPL sale in Niaga was recorded in wholesale banking. But despite that, due to the write-back that we recorded in Singapore, PBT is up by 8.6% Q-on-Q. Year-on-year, a very strong NOII driven by both our trading and fees driving the strong PPOP growth of 7.8%. We also had write-backs coming through during the first half of 2024. Growth in terms of our loans in Malaysia is flattish in loans driving that moderate growth of 1.3%. On CDA and group funding on Slide 18, good growth in terms of PBT driven by lower ECL. The weakness on a year-on-year basis is really driven by higher OpEx at the center and also some of the -- related to CDA due to the high revenue growth. If you look at the indicators on CDA, Touch 'n Go, both indicators in terms of the momentum continues to be positive. Similarly, in Philippines, our deposit balance now is growing at 27% year-on-year. Our number of customers is also now reaching the 8 million -- almost the 8 million mark. Next slide. This is something that we disclosed, a new disclosure that we disclosed since our last quarter. So if you look at the contribution in terms of the narrowing of the losses of the CDA business during the first half of 2024, that contributed to about 10 basis points ROE, as mentioned, to the group. And if you look at the trajectory in terms of revenue for Philippines, that continues to be positive as what you saw during the first quarter of the year. Lastly, on CIMB Islamic, very strong PBT growth Q-on-Q, driven by strong NFI. On a year-on-year basis, even stronger growth year-on-year, driven by a very good, robust top line growth and also lower ECL. We continue to focus on growing our Islamic book, growing at 12.9% year-on-year. So that is the end of my financial section, so I pass the presentation back to Novan. Thank you.

Thank you very much, Khairul. I'll now take you through where we are with regards to our Forward23+ execution as well as to wrap up our presentation. So this is the final year of Forward23+. So it will end by end of this year. The team is extremely focused with regards to execution in terms of executing the strategies that we have been put in place. But of course, we'll continue to be very nimble and responsive to current market trends as you have seen us respond to the NIM compression that we saw last year. Now in terms of the 2 areas of Forward23+ that really has worked in our favor. If you look at this chart, we've successfully driven down cost-to-income ratio from close to 52% in 2020, and it's now hovering at 45.6% in the first half of '24. The other component that we have worked extremely diligent and hard is on the credit cost, our asset quality. We drove that down from 150 basis points in 2020 to about 28 basis points that you see today. These 2 main factors had a big effect in driving our ROE up from 2.1% in 2020 to the 11.4% that you see today. Not on this chart, but if you track our revenue growth, from 2020, the CAGR was about 4% to 5%. So it's a very disciplined revenue growth but a lot of focus and rigor on the cost side as well as improving asset quality to get us to where we are today. With regards to our asset allocation, when we started this journey, there was a concerted effort to reallocate our capital and resources. The plan was to grow consumer in Singapore, Indonesia and Thailand, as well as to drive down the commercial business in Thailand while we fix and turn around the commercial businesses in Singapore and Indonesia. You will see on this page that we have been successful in dynamically reallocating the capital that we plan to do at the onset of this strategic program. With regards to our digital reliability, I'm pleased to announce that we have maintained a system up, it's green across the board this year compared to the previous years. We are committed to continue to invest in strengthening our resiliency and maintaining our uptime availability. Now where do we go from here? We are 11.4% ROE. Our target for '24 was 11% to 11.5%. The original F23+ target was 11.5% to 12.5%. I think it's really maintaining the rigor and the vigilance and the discipline in execution that we have put in place while remaining nimble and responsive to current market trends. I think if we just maintain this discipline and continue to be very clinical in our execution, we are confident that we can hit our 2024 target. With regards to our sustainability update, I'm pleased to announce that we are the first Malaysian bank to have completed our 2030 decarbonization target setting. You will recall that we have now announced our targets for 6 high-emitting sectors. We're the first bank globally to set a target for palm oil. We're also the first in Malaysia to set targets for thermal coal mining, cement, power, oil and gas and real estate. Also the first bank globally to actually announce our commitment to exit coal by 2040. With regards to mobilizing capital in the sustainability space, I'm pleased to announce that we're very close to now achieving the target of MYR 100 billion of G6 financing that we've put in place to achieve by end of this year. As of first half, we are now at 99.7%. So very, very close to achieving our target. If you recall, we started this journey with a much lower target. We revised our target upwards midway through the journey. And now in -- towards the end of August, we are very close to achieving that target. With regards to our responsibility in the markets that we operate, we expect to allocate about MYR 42 million for CSR and Zakat contributions throughout the region this year. CIMB is also a proud sponsor of the CIMB ASEAN Scholarship Program. It's now in its ninth year, and we have disbursed about MYR 70 million to over 120 scholars since inception. CIMB Philippines operates as a fully digital bank. It serves the underserved market in the Philippines, and we now serve over 7.5 million customers in that country. To wrap up, we continue to benefit from our diversified ASEAN portfolio where we serve all client segments, from the underserved to the high net worth, from SMEs to large corporates, as well as governments in the markets that we operate. We are focused on meeting F23+ targets, which complete by end of this year. I will also remain vigilant and responsive to current market trends. We are in the midst of drawing out our new strategic plan. We'll take into account of our endowments, what our customers want, what are the current trends as well as what our competitors are doing. But rest assured, risk and operational resiliency, which has been a key focus for CIMB Group over the last few years, will continue to play center stage and be institutionalized throughout this organization. I hope that we'll be able to announce -- or the target is to announce our new plan to the market when we announce our full year '24 results in early 2025. With that, thank you very much.

Thank you, Novan and Khairul. We'll now begin the Q&A session. [Operator Instructions] We have a few questions dispensed already. Can we just take the first one from Aakash from UBS.

Okay. So first of all, congrats, Novan, on the new responsibility and wish you all the very best. You're taking over at the time in which is a very exciting time for CIMB, and I think it's also a time in CIMB's reporting its strongest profitability in a very long, long time. So my question to you is, is this something that worries you? And many investors argue that a lot of the low-hanging fruits that CIMB had have been addressed and that have resulted in this better profitability. So what would you say to those investors? And are there any areas from F23+ that you think still need more work and can help you further improve this profitability? That's the first question, and then I have a few more.

Okay. Thank you very much, Aakash. I mean, look, we have to continue to reinvent ourselves, not just us, but any business, right? Trends and markets are always evolving. And the industry today, as you rightly pointed out, is in very exciting times. I mean post Jackson Hole, it's now a question of what is the quantum of the Fed rate cuts rather than when the Fed will be cutting rates. That alone will then trigger decisions across central banks globally, including the markets that we operate in, in terms of what will they do next depending on the local circumstances in each market. All these dynamic trends, all these dynamic markets are exciting times. Our customers, their needs change over time. Our customers become a lot more sophisticated. And therefore, we then need to always look at our endowments, study the trends, study what our customer wants, look at what our competitors are doing and continue to evolve. So I wouldn't say low-hanging fruits have been taken away, and there's nothing left to do. I think the market is always evolving. There's a lot of things to do. When F23+ first started, the market was in a completely different place. Today, we are approaching a market that is very different. And we need to now think about how are we going to chart our next plan moving forward. So capital is scarce. We need to think about how we want to reallocate capital to areas that make sense, to areas where the pricing and the business will commensurate with the risk that we're going to take on. And we just have to be very vigilant and focused on that. But at the same time, always be nimble, right? Because although you have your strategy in place, you've decided where to reallocate your resources, things will happen. And it's important that we remain vigilant and remain responsive and be nimble enough to respond to those situations like the industry NIM compression situation we saw last year. We decided not to play the volume game and focus on deposits and focus to be disciplined on pricing. So yes, exciting times, but I do feel there's a lot more to do and a lot more that we can achieve. To your second part of your question with regards to F23+ and any areas that we will continue on. Look, I think a key part of F23+ was really about our operational resiliency, how we look at risk. I mean these are very important, especially in the business that we operate because our customers bank with us because they trust us and we have a fiduciary duty and we need to return their trust by making sure that we are very, very aware of the risks that we operate in, make sure that our operations are resilient because of that trust. And that is something that we will continue on. It is something that's been institutionalized throughout the organization and something that will continue to play center stage with regards to our next journey.

Okay. You talked about the volume growth there. I think if we look at the year-to-date loan growth for the bank, I think there's hardly been any growth, right? You have grown like 1% loans year-to-date. And this is at a time in economy, I think many people think are taking off, there's a strong growth boom happening. I understand the focus on ROE, but is this -- are you missing out on some really lucrative opportunities here? And is it possible that next year, we might see a strong catch-up from CIMB, which might not -- as your market share declines this year, you might just do a very strong catch-up next year, which might not be necessarily very good for the NIM or the margins?

So not necessarily the case. If I can focus you on Page 11. We need to look into the loans growth in a lot more granular. So yes, it's a 4.2% loan growth year-on-year, slightly above 0.5% quarter-on-quarter. But you need to look into or we need to look into the respective drivers of this loan growth. If you look at consumer banking and commercial banking, we are growing in line with the market, which is 5%, close to 6% loan growth year-on-year. Now that's important because these are loan engines that continue to move. And it's smaller tickets, but larger volumes. And this engine needs to continue moving and it has been continue moving. The wholesale banking is a different play. Wholesale banking, yes, we're seeing 1.3% year-on-year growth because our focus has shifted to client profitability. But wholesale banking, it's a very chunky loan growth business. I mean you could do large loans at MYR 0.5 billion, MYR 1 billion to some large corporates and the volumes are a lot larger than what you see in the consumer and commercial space. We continue to engage our clients. We continue to speak to our clients. We continue to bring storm, generate ideas, and we are executing deals for our clients. We continue to value add when there's a need for us to grow our loans in the wholesale space, that is something that we can switch on? So I don't think it's a situation that is alarming. I don't think it's a situation where we are undergoing. It's just that we're being very focus and clinical on where we grow.

And Aakash, just in terms of our view, I mean, you would have noticed, right, in terms of our guidance, we are maintaining our loan growth guidance of 5% to 7%, right? And if I break that down into some of those countries what's driving that guidance or so for Malaysia, we're looking to grow somewhere around that 5% sort of level. For Indonesia, we're looking at growing at 5% to 7%. So broadly speaking, of course, from a year-to-date perspective, what you alluded to, you might think that there are significant risks to our loan growth guidance. On a year-on-year basis, as what Novan highlighted, that 4% of growth on a year-on-year basis that sort of reasonable of number that we are looking at. So that you could see some from a year-to-date basis, some acceleration in the second half of the year where we are still going to hopefully maintain this sort of level of year-on-year growth. Of course, there are some risks in terms of meeting our loan growth guidance of 5% to 7%, but I wouldn't extrapolate the year-to-date number of growth that you were alluding to earlier.

Okay. The question is just, I think, despite some weakness in the trading income quarter-on-quarter, right, it's still pretty elevated. So I just want to understand what's the outlook for trading income for the rest of the year. And then similarly for fee income as well, right? I mean you're doing very well. Are there any one-off drivers of this in Q2? And is this a sustained level for the rest of the year?

Trading -- so fee income during the second quarter, on an underlying basis, bancassurance and structured product -- wealth management products remain strong. So that did pick up. from second quarter to first quarter. First quarter was already showing a good impulse. So on a year-on-year basis, that has continued to grow. We had some lumpy loans of related loan syndication related fees coming through in Singapore. So that bump did up slightly but not in a material way on a year-on-year basis. If you look at the numbers, right, Q-on-Q fee income went up by about 6%. Year-on-year, fee income went up by about 14%. And the bulk of that is actually underlying fee income coming through from consumer, in particular, Malaysia and Indonesia, bancassurance also in Thailand coming through. GWB fee income is also up. Trading and FX, it is weaker, right, in the second quarter. So far, third quarter in terms of the numbers has been sustained, right? So a good level. Going beyond that, I think it's very difficult to predict. Markets continue to be volatile, and we continue to take advantage of that volatility in terms of the volumes, higher volumes and also in terms of better spreads.

Yes. I would just add on to Khairul's point, right? I mean a lot of focus for the institution is going to -- is on NOII generated from clients. And it's really 3 components: it's from the wealth side, it's from the transaction banking, payments, transaction side as well as on the treasury client sales side. We're seeing strong numbers on the treasury client sales and on the wealth side. Transaction banking is a business that we're very focused on. We've made new hires. We have revamped the team. We are working on our new digital product. So these areas are areas of extreme focus for the group moving forward.

Understood. And just my last question is on CIMB Philippines, right? So you've started showing the revenue. Can you give us a bit more color on like what is the composition in terms of NII and non-NII here and what are the other products that you have?

Yes. Okay. We do have, of course, a lot of information. So it's intended to just firstly show you in terms of the revenue trajectory and growth right? In terms of the composition, right. In terms of the composition, also, I can give you some direction. I mean directionally, that is coming through on an improving sort of trend directionally. But in terms of specific numbers, we will consider and come through in terms of disclosing a bit more in terms of the Philippines or numbers in the coming quarters.

Okay. And can you say -- is this business now profitable? CIMB Philippines. Is it profitable?

Yes. So in 2023, right, we broke even in 2023. We are targeting to repeat that performance in 2024.

Let me take the next question from Yong Hong from Citi.

Can you hear me?

A bit soft. If you can speak up a bit, Yong Hong.

Okay. Can you hear me now?

Yes, a bit better.

Thanks for presentation and good hearing from you, Novan and Khairul. I'm looking forward to hear more of your views. Today, I have 4 questions. First question is on NIMs. Can you share more color why NIMs and loans are up? The conventional banking NII is down and is Islamic so strong? Maybe some color on you and cost of funds will be quite helpful, at least my perspective.

Yes. So in terms of the state, we look at it from a leverage perspective, right, both on the conventional and also the Islamic side. So some of that benefit coming through in terms of the FTE pricing, in some quarters, it benefits more on the Islamic side versus the conventional side. some of our drive in terms of our loans as well, right? If you look at the NII growth and the loan growth, the loan growth in Islamic banking is about [indiscernible] year-on-year, so hence, driving the NII growth even further coming through on the slamming side rather than the conventional side.

Okay. Right. Maybe the next question will be on capital management. I think I've asked Dato' previously. In the CIMB Thai edition, it has always been on the [ discovery ] side. But given the auto challenges from the EV price war, higher used car supply and many other reasons, these warrant everything about your...

Yong Hong, we're having difficulty hearing. Can you speak, I guess, louder and slower, please?

Okay. Can you hear me now? Sorry.

Yes. And slower.

My second question is on capital management. I've asked before this to Dato'. But looking at the CIMB Thai, given the auto challenges coming from the EV price war, higher used car supply and many other events really warrant a rethink about your strategy on capital allocation, especially out of Thai consumer?

Okay. So as I mentioned, F23+ is coming to an end this year, and we're now working on our next strategic plan. When F23+ was first encapsulated, it was a different market altogether. The market conditions have changed in the various markets that we operate in. We're going to take that into account as we decide on our capital reallocation across the group. How you've seen us being disciplined and vigilant in terms of reallocating capital from commercial into consumer that we've done for F23+, we're going to apply that same rigor when we evaluate the capital reallocation across the group moving forward.

Okay. Got it. Maybe just following up on this, looking at your CIMB bank-only capital ratio. It seems that you can do another special dividend at year-end. So just wanting to see your thoughts on how should we think about the minimum CET1 ratio at the bank level?

At the bank level, I think we are optimal as well. So if you look at it both in terms of our total capital and even our CET1 perspective. So in terms of the bank level, we manage it on both fronts. So we are just around that 19% level in terms of total capital. CET1 at the bank level, we're not that far off from where we are at in terms of the group, right? So we do optimize our capital from that perspective. And the affordability at the group does take into account the various capital levels at the various subsidiaries, bank, Thailand and Niaga, right? And so with our capital optimization effort that we did during the second quarter on that special dividend, we now believe that we are optimal across the board, including at the GH level.

Okay. Got it. Maybe just one more question. CIMB Niaga in July saw some FX losses. Should we be worried about an FX move, especially with the U.S. rate cut is coming? And beyond this, do you see any risk to earnings for this year?

If your perspective is at the -- from the group level, I think in terms of the impact, right, coming from FX translation on the P&L, right, P&L perspective, that is partially offset coming from the equity, right? So the equity in terms of marketing to market of the net assets of Niaga does have an offset coming through at the equity side in reserves.

Are you referring to the translation of FX from Niaga to group? Or are you referring to FX trading business in Niaga itself?

Niaga.

Yes, correct. I think I was looking at July month only stats for CIMB Niaga.

Are you looking at the FX trading business in Niaga?

Yes, correct. Yes.

So how we look at our NOII and as a subset of that, the treasury business, is the treasury client sales is an important number, but that's franchise value, right? That's the income that we make from FX from our clients. That number is up. And that number is a key focus for the group. I hear you with regards to trading and that depends on volatility and something that's very difficult to forecast. But certainly, a lot of concerted effort is being put throughout the group with regards to what we can generate from our clients for NOII, and that number is up and it's very encouraging. With regards to your question on the Fed rate cuts and the impact, look, I think Fed rate cuts could, in my view, increased liquidity into emerging markets. There's been a lot of exporters who may have been holding on to the U.S. dollars. With Fed rate cuts, people will start to have a different view on the strength of the U.S. dollar currency and start to buy local currency. That could release a lot of local liquidity into the market and certainly, we want to be a beneficiary of that increase in liquidity. That reduction in Fed funds would also increase economic activity, hopefully, and that should generate a lot more business within the economies that we operate, Indonesia, including. But look, at the end of the day, it's a combination of many factors, right, Yong Hong. So it also depends on how the local central banks will react to the Fed rate cuts, and that will pretty much depend on each country's economic circumstances.

Can we move on to Ben Lim from Macquarie.

Yes. And well done on a good set of results. My first question, I just want to distill that whole conversation in the Fed rate cuts with a simple question, which is, have you run the sensitivity? What does the '25 Fed rate cut mean for your NIMs? Just -- I'm assuming you've run some sensitivity, I just want to understand what your assumptions are.

Yes. So I think if you go to Malaysia, right? So Malaysia, we are more, right, more driven by the Malaysia rate outlook, right? In terms of the foreign currency, we are fairly insulated. But in terms of really purely from a NIM perspective. So for Malaysia, it's more related to OPR, right? We expect OPR for this year to remain stable. But at some point, when we do get a rate cut debt sensitivity is all else, right, remaining equal, is about MYR 18 million hit to NOII. However, this time around, why I stress on all else remaining equal, I think we do see significant opportunity in a rate cut environment where we may be able to pass on more in terms of the deposit side in terms of taking the opportunity to cut our deposits more than the rate hike. And that should enable us to not just mitigate but potentially gain some margin expansion on a sustainable basis.

I think I want to tie back to the comment earlier on the influx of liquidity. I think I see significant opportunity here for you to even raise funding, issue papers, right, maybe even your wholesale funding cost comes down, that influx of liquidity. So maybe can you share some color on how that liquidity landscape has been shaping up in the recent weeks or month of volatility, right, your view going forward? And how much cost of fund savings you think you can enjoy if the liquidity continues to improve?

Well, I mean, certainly, the liquidity situation we're seeing today is a lot better than last year. And that is basically showing in the NIM expansion that we have reported. So last year, when it was a period of everyone fighting for funds, we are certainly seeing this relax a lot in the first 6 months of this year. So we are continuing to substitute the higher cost deposits with the much lower cost of deposits. It's getting easier to do it and yes, we do foresee quite a bit. I mean there's a lot of exporters. I mean, Malaysia, for example, there's a lot of exporters that have been holding U.S. dollars. It's currently a situation where they may want to sell the U.S. dollars and buy local currency and that basically is an opportunity for us. It's a lot of opportunity. But I guess, to be prudent for now, we will assume that our NIMs will remain stable, it will normalize. But of course, look, we are very vigilant, and we're all out there trying to trying to benefit from the situation.

Okay. So there's 2 balancing factors. I appreciate there's a lot of moving parts, right? But your liability management hinges on, I suppose, surplus dollar demand, right? And so that difference in your booking through your T&M. Do you see that opportunity narrowing or even disappearing mostly into the second half of this year if the Fed rate cuts play out? And related to that would be, our banking system has been substantially disintermediated, a lot of your corporate customers can go to the bond market and yields are coming down. Do you think that, that poses a risk on your loans growth? You're targeting corporates, right, to make up the second half. So just yes, these 2 dynamics.

Yes, let me complicate your dynamic further. So yes, there will be a Fed rate cut. Exporters that basically have been hoarding a lot of dollars will be releasing that to the market. So that will basically be one scenario. I'll layer that to the scenario where we're seeing a much more rational competition in the banking industry as well. You saw last year how banks were fighting for deposits. Maybe in the first quarter, we started that journey of being very disciplined. We're starting to see a lot of the competitors that you see the second quarter results, all pivoting in terms of the strategy. So I do think that this element of competition pivoting and being a lot more rational with regards to the competition will also help with the domestic liquidity scenario. With regards to corporates tapping the bond market and will that impact the loan, look, this has always been there, right? Malaysia has a very deep pool of liquidity. Corporates have access to either the loan market or the bond market or you know what, the new phenomenon that's been going on globally is the private capital market, right? We've not seen a lot of that here in this part of the world, but certainly, there are funds that are starting to tap. But look, at the end of the day, companies and corporates and issuers will need to balance out their funding. And they'll need to balance out their funding between bonds as well as bank loans. They need to preserve their lines with either side of the scenario. So I don't think that will impact the bank loan market.

Okay. And just a very simple final question. Do you think -- would you like to get us maybe on what should think about potential for a special dividend again in the fourth quarter?

I think as of now, we feel that our capital is optimized, right, at 14.5%. We live in a very uncertain world. We've seen some shocks from CrowdStrike to the market volatility that we witnessed a couple of weeks ago just because some stocks or major consumer stocks in the U.S. didn't do well, right? So look, there's just so many factors out there. So we feel that our capital currently is optimized to take on any challenges of the future.

Our last one, JPMorgan.

A few questions. First is, I just want to double-click on the CET1. Target is 13.5%. Even if your credit growth goes up meaningfully in the next 6 months, you can't get from 14.5% to 13.5% till you do something with it. So is it -- is this 13.5% -- like I know it's greater than 13.5%. So is it -- would you, all things -- all else constant, would you think about returning capital? Or would you use it any other way? That's the first, and I have 2 more after this.

Yes. Actually, if you look at our -- the way we always talk about capital, right, in terms of our guidance and target, right? We always have quite a significant comfort level in terms of our target versus what we actually achieved by the end of [indiscernible] big consideration in terms of our capital management, right? It's not just in terms of looking at our target, but also like what Novan mentioned earlier. So that is one very important element is in terms of the forward-looking sort of level. Another is also in terms of where our peers are at, right? And everyone, as we saw, is hovering around this 14% of level. So this is where we are comfortable at. Our target is fairly conservative, where we want to at least have significance of GAAP, positive GAAP versus our target and guidance. It doesn't imply that we are looking at further capital optimization. It doesn't imply that we're looking at significant RWA consumption.

Got it. Second one is on, again, on the yield competition. Malaysia, we have known for years, is a very competitive market. It's very tough to keep the margin. It has been 2 quarters since banks have seen pickup in NIMs. At some point in time, one of the banks will decide, okay, I'm at optimum NIM. Let's give a bit of the yields a way to get market share. I know right now, you're not seeing it, but is there any part of the portfolio where there is some hint of asset price, asset yield competition, asset credit spread competition? And can we expect that you will be able to retain the cost of fund decline? Or you will ultimately have to give it out and we end up getting flatter NIMs rather than expansion.

Okay. Good question. I mean, yes, Malaysia is a very competitive market. And yes, it will be a matter of time when one of the banks feel they're optimized and then why not then go into the market share volume gain. But that's where we need to be very nimble in terms of how we allocate our capital across the various segments, right? So we have the consumer, the commercial and the wholesale segments. Within each of these segments, there are various subsegments. And we're now being very clinical in terms of balancing out the loans that we provide within each segment and subsegment as well as the -- where do we get our deposits from. So it's being very clinical about each segment and subsegment. It's not about each segment operating on their own and making sure they're self-funding. It's about a liquidity pool for the bank. Every business out there gets deposits and we get on deposits from where we can -- where it's most optimized. And we then channel those deposits and loan out the money to the segments and subsegments that's more optimized. So Harsh, it's dynamically just continuing to making sure we maintain this balance in order to preserve our NIMs.

So if I hear you correctly, what you are basically suggesting is you will focus still on NIM rather than on market share. That ethos basically continues if need be.

That's correct. We're going to be focused on NIM, not market share. We won't do a loan where it doesn't commensurate with the risk, right? At the end of the day, we have deposits. We need to mobilize the deposits, but we need to know the level of the risk that we're coming in, and we need to make sure that our assets are priced according to the risk that we're doing. Alongside those loans is where then the NOII comes in when the cross-sell engine comes and that is extremely crucial. We've grown the NOII ratio from 30% to now 31%. But definitely, we're not happy at this level. We want to push it up further. So it's really balancing across all these areas and being very clinical about it.

Very, very clear. And the final question is a bit more medium term. This is in terms of your transaction capabilities. Like can you unequivocally say that you guys are the best, have the best transaction capabilities in Malaysia? If yes, then great; if no, then how do we think about what is the amount of time and dollars that's needed to get to wherever you want to be, you want to be the best, you want to be like top 2, top 3, whatever it is? And the reason I'm asking that is, one, what it means for cost and all of those things. But also, the deal pipeline. We saw one of your competitors having a fantastic corporate credit growth in first half of the year. So it begs the question that, is it because they have better corporate relationship? Do they have better transaction capabilities? So basically, what I'm coming to is how -- what is the path towards getting to that best-in-class corporate relationships and capabilities, which has traditionally been your strength for the longest period of time?

So just to clarify, Harsh. When you mean transaction capabilities, it's more on the corporate action transactions as opposed to transaction banking payments business.

Both, Novan, because I think both are interrelated. If I have, let's say, the entire cash management of not only the bank, but -- sorry, the corporate, but the ecosystem, the payrolls, and you know better than most of us, it leads to much better corporate relationships. And yes, capital market is an important part of it. But as a commercial bank, that is where a lot of relationships start. So basically, it's a bit of both, but primarily I was looking at more on the commercial banking side of it.

Okay. Now this is extremely important for us, in fact, a big part of our strategic plan today and moving forward. So let me start first with our transactions and payment capabilities. And this transcends all our customer segments, right? Whether is it the consumer side or the commercial SME as well as the wholesale banking corporate side, including the underserved. So we serve all segments and we make sure that we have the best transactions and payment platforms across all the client segments. We've been investing a lot in this. I mean, on the consumer side, you will know that we replace the Clicks app to the OCTO app, where the performance is extremely different, the customer journey and experience is also a lot better and we are in the process of fully migrating our current users from Clicks onto the OCTO app. On the underserved segment, we have Touch 'n Go Digital that basically have 20 million users. Very popular wallet. Everybody uses the app to transact, to make payments, small payments, QR code. But also the underserved, the foreign workers, right? They rely on that app as their banking account. And we're also improving the payment capabilities on that app to -- and it does also today include remittances that they can make back to their home countries. Moving on to the commercial banking side. For the longest of time, yes, we do have a transaction banking platform similar to Clicks. But we are now in the process of upgrading it. We started the pilot stage with a number of customers with regards to our next-generation base channel and we are in the process of adding in more features. By end of this year, substantially, they would have enough features for us to migrate more customers over. And the experience of this new platform is different than the old one. In fact, like how Clicks move to OCTO, much better customer experience. Moving on to the new, our next-gen Bizchannel is also something similar. And then we then move on to the wholesale side, right, where a lot of it is due to our own relationships. But it's not just pure relationships alone. It's really you driving off CIMB as a solutions provider for our clients. We are a very strong investment banking player. We're the #1 player in the market every year, undisputed. We help solve -- bring solutions for our clients. That solutions could be our money through loan. The solutions could come from us giving them advisory, being an intermediator getting money from the capital markets, us being an M&A adviser and then while we are providing all these solutions, we also then help them with cash management. So it's a real overall story for us on the wholesale side when it comes to these clients. So put all and all together, Harsh, it's something that is extremely important for us. Are we happy where we are? Of course, not. We're going to continue to invest. Although our cost-to-income ratio went down to 45-plus percent this first half, it was not at the expense of tech investments. In fact, our tech investments went up by 9.4% year-on-year. We are continuing to invest in tech because this is important for us, and we're not going to cut costs at the expense of making further investments for our clients. So, look, it's a journey. A lot of work has been put in, but a lot more work needs to go in, and that's something that we are very, very, very focused on. You mentioned about our competitors as well, right. Some competitors have been aggressive with loan. You've seen some very big double-digit loan growth. Do we need to follow? I don't think so, right? At the end of the day, we play our game. We're very clear that for the wholesale clients, client profitability is important, but it's not just for our profitability. It's providing that whole suite of services for our clients. Our clients are not just looking at us for balance sheet. They're looking at it for balance sheet. They're looking at us for cash management. They are looking at us for advice. They are looking at us to be the broker, to intermediate, to help them generate more businesses, to divest noncore businesses, to acquire more core businesses, to expand into new markets. That is our value proposition to our wholesale clients not just going out there writing loans.

Thanks, Harsh. There are no further questions at this point. [Operator Instructions] Okay. I think we are done. Thank you, ladies and gentlemen. I will pass the line back to Novan for his closing remarks, if you have any.

So I just want to wish thank you very much for attending our session today. I know it's late on a Friday evening, in fact, the last bank to report. So thank you very much for your patience. Thank you for joining us. To all fellow Malaysians, Happy 67th Merdeka. I hope you have a good weekend with your family and your loved ones. Thank you very much, and I hope to catch up with you soon. Thank you.

Ladies and gentlemen, that concludes the briefing for today. Once again, thank you for joining us. I wish you a very good weekend and a good evening ahead. Thank you.