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

You should have already received the analyst presentation and financial statements via e-mail from our 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. [Operator Instructions] At this juncture, I would like to hand over the briefing to Novan and Khairul. Novan, over to you.

Thank you, Steven. Good afternoon, everyone, and thank you very much for your time to join us today. I'm pleased to share with you our 2024 financial performance. Net profit is up 10.7% year-on-year to about MYR 7.7 billion. In short, we basically delivered 11.2% ROE through a sustainable increase of about 6.1% income growth while strengthening our liquidity with LDRs now at about 88%. We continue to benefit from our diverse ASEAN portfolio, where we serve all client segments. Just to refresh your memory, at the start of this year -- or at the start of last year, we embarked on a strategy to focus on client franchise as well as focusing on deposits because deposits are crucial to fund our asset growth. And that was basically devised as a result of the tight liquidity situations that we saw in 2023. As a result, we saw total income grow by more than 6%. One of the factors was net interest income, and we saw that growing 5.3% year-on-year. One of the key factors for this growth is driven by our new strategy of being very, very deposit-focused and client franchise. Deposits grew about 5.2% on a constant currency basis, and that was then used to fund our loans growth of about 4.8% on a constant currency basis. Now despite the various rate cuts that we observed in the key markets that we operate, our NIMs were well supported at 2.21%, owing to our deposit-led strategy. On the cross-sell side, our noninterest income expanded 8.1% year-on-year, and I attribute that to our stronger client franchise business. Our treasury client sales, which is the income that we generate from treasury as a product from our clients, grew 17.4% year-on-year, while fees were up more than 4%. This translated into an NOII ratio of about 31%, and this is 60 basis points stronger than 2023. We continue to be extremely disciplined with costs and ensure efficiency and no wastage. The previous page, please. Okay. And we see our -- sorry, the next page, please. With our cost-to-income ratio improving to 46.7%, our costs grew 5.6% year-on-year, which led into a positive JAW. But this is not at the expense of our investments. In fact, our investments in tech was up 8.5% year-on-year, translating into a TCIR of 7.9%. I mentioned previously that we are always targeting a tech cost over income ratio of about 7% to 9%, in line with our peers. We continue to be proactive to manage our asset quality, and I'm pleased to announce that we're seeing further improvement in our asset quality. Our allowance coverage last year was 97%. This year, it has increased to 105.3%. And this also was as a result of a reduction in credit costs to 25 basis points from 32 basis points last year. GIL also saw an improvement, which we will go through later with you in the deck. As a result, we are proposing a second interim dividend of MYR 0.20 per share. This will bring the total dividend per share of MYR 0.47, translating into a record total dividend payout of more than MYR 5 billion. This translates into an annualized total return to shareholders of 34.6% per year over the F23+ period. Our returns on equity for 2024 was 11.2% at a CET1 ratio of 14.6%. Next page, please. 2024 also marks the completion of our Forward23+ program. During that period, share price increased more than 2x. And as I mentioned earlier, we delivered shareholders' returns annually of 34.6% during that period. Now what led to this achievement, and I summarize that into 5 key points. First, we were extremely disciplined with the reshaping of our portfolio strategy. We reallocated capital away from businesses that were less effective, such as the commercial business in Thailand, where we exited. And we also reduced our exposures within the commercial businesses of Indonesia and Singapore. We turned around those businesses, and we're growing it back again in subsegments that we know how to operate well. The second point, which is actually a very important point, is we introduced a new culture during this period. This new culture, which we call EPICC, is really modeled around ensuring integrity, collaboration as well as a customer-centric focus within CIMB. We have hardwired that throughout the organization over the last few years. The third key measure that we introduced during this period is also an increased awareness of safeguarding the bank. We came up with new policies and procedures, new org structures to facilitate higher risk awareness within the group. And this, we can see, has resulted in an improvement in our asset quality. We have also instituted a culture of being very disciplined with costs, ensuring that whatever is being invested results in the necessary returns, and we are seeing that increase in productivity today. Next page, please. We end up achieving an 11.2% ROE despite several challenges that we saw in our industry over the last few years. One of the big factors was the NIM compression that we saw. It started in 2023. It carried on in 2024 within some of the key markets that we operate. And therefore, we were nimble to pivot our strategies to being a lot more deposit-led, a lot more client franchise-focused and focused on profitable asset pricing to basically mitigate the NIM compression that we will see in the markets that we operate. There was also increase in capital requirements within some markets that we operate. We operate today in a number of countries, which has a number of different jurisdictions and different local capital requirements. And that has also impacted our ability to fully optimize our capital on a consolidated basis. Next page, please. Regarding the portfolio reshaping, that has played a key role in the strong performance over the last few years. We were very disciplined with regards to capital allocation. We were not afraid to exit businesses that just didn't make sense for us. As you can see on this page, within the markets that we operate of Singapore, Indonesia and Thailand, there was a significant capital reallocation away from the commercial business, which is the middle part of the table, into the consumer business, on the left side of the table. We have totally exited the commercial business in Thailand. It has been a challenging situation there, and that was the right decision that we took. And for Singapore and Indonesia, we have reduced our exposure. We've turned around the business. We've improved our credit abilities, and now we're growing it back in areas that we know how to operate. Next page, please. I mentioned earlier that the despite the reduction in cost-to-income ratio, that was not at the expense of our investments in technology. Compare that from pre-F23+ to post, we have roughly doubled our annual investments in technology. That has then resulted in a reduction in tech incidences within our platforms, which is extremely crucial in our business today. Next page, please. I mentioned about us hardwiring a new corporate culture called EPICC. This has resulted in an increase in our Organizational Health Index. You would see that when we first started tracking this, CIMB Group was in the third quartile with a score of 79%. I'm pleased to announce that last year, this has gone up to an all-time high of 84% and we are now a top-quartile OHI bank. Next page, please. On the sustainability front, this is something that is very close to our heart. It's something that we're focused on because we strongly believe that this future-proofs our organization. There are some companies today who are part of the supply chain, but if they are not sustainable, risks getting removed from the supply chain in years to come. We see that as our purpose and our duty to work with these companies to transition to be more sustainable so they do not get cut out of the supply chain. This is what I mean by future-proofing our organization. We've spent a lot of investments into this area, and I'm pleased to announce that last year, we were ranked #1 globally among financial institutions by World Benchmarking Alliance. We retained our 88th percentile in the S&P Global Corporate Sustainability Assessment. We've mobilized more than MYR 100 billion of sustainable financing, which exceeded our target ahead of schedule. And we are the first Malaysian bank to have announced our decarbonization targets for 6 high-emitting sectors by 2030. With regards to our commitments in the societies that we operate, we see this as extremely important because fostering an inclusive economy will improve the economy in which we operate, which then indirectly benefits all of us. We see our purpose and obligation to raise the floor seriously, and we have mobilized more than MYR 120 million in community investments from 2021 to '24. Our people have spent more than 200,000 hours in volunteer hours last year, above the targeted 130,000 hours. Next page, please. How do we see 2025? We all know about the geopolitical uncertainties that we are experiencing today. We remain cautious, and we continue to work with our customers and our clients who are all trying to find the sweet spot to operate within these geopolitical uncertainties. But net-net, we do expect ASEAN to be resilient and to actually benefit from this bifurcation. As a result, we are expecting a healthier loan growth this year versus last year, which will offset any NIM compression that we might see this year as a result of declining interest rates in some of the markets that we operate. We have seen a decline in Indonesia and Thailand interest rates, Indonesia earlier this year and Thailand a couple of days ago, and we want to make sure that we are prepared for that. But we are confident of a healthier loan growth this year, given how ASEAN would benefit from this new world order. But to do that, we will leverage on our strong client franchise, as demonstrated in our performance over the last few years. We will stay the course and maintain our deposit-led strategy and to be very disciplined with regards to our asset pricing. On the cost side, we're going to remain disciplined with regards to cost and productivity. As I mentioned earlier, our costs grew 5% last year, and we want to maintain being very disciplined with costs given the current inflationary environment that we're seeing. As a result, we do expect our cost-to-income ratio to remain at the current levels. We're going to continue and stay the course on our proactive approach towards managing our asset quality. However, we do expect credit costs to normalize to 30 to 40 basis points versus the 25 basis points today. We will be vigilant and disciplined with capital allocation. You know our track record. Whenever we have excess capital, over the last 1.5 years, we have paid out a special dividend. We will continue to be proactive with regards to our capital allocation. And therefore, we're targeting a CET1 ratio of at least 14% and maintaining our dividend payout ratio of 55%. We're targeting an ROE of 11% to 11.5% next year. With that, I will now hand over to Khairul to walk you through the rest of the presentation.

Thank you, Novan, and good afternoon, everyone. So firstly, going to the details of our numbers on our key highlights on Slide 12, like what Novan mentioned, if you look at our operating income on a year-on-year basis, grew at 6.1%, and this is a real reflection of our diversified business geography. You can see driving that operating income growth is mainly coming from Singapore, growing robustly at 20%; similarly, Malaysia growing close to 9%, with those 2 countries offsetting some of the challenges that we face in Indonesia and Thailand. And also with this growth, despite on a Q-on-Q basis, we were down 7.2% because of the very exceptional third quarter performance, particularly on NOI. But if you look at the number comparing fourth quarter '24 to fourth quarter '23, on an NII perspective, the growth was pretty robust, growing at 3.1%, and that translated down to the bottom line. And this is underpinned by the fact that despite that seasonal pressure on NIM that we saw in the fourth quarter, our NIM on a year-on-year basis remains relatively stable with just a marginal contraction of 1 basis point. Asset quality, that has continued to improve. I think the key highlight here is what Novan mentioned in terms of our allowance coverage remaining high at a record level of 105% coverage. On segmental PBT on the next slide, briefly, so if we look at our Consumer Banking, on a top line basis, Consumer Banking did pretty well at 5.1% growth year-on-year. However, this is offset by some of the conservative provisioning that we did during 2024, and most of that coming through in the fourth quarter of the year, impacting the Q-on-Q growth for Consumer Banking. Commercial Banking, the growth both on a Q-on-Q and on a year-on-year basis is driven by lower provisions. Specifically on a Q-on-Q basis, we recorded a net write-back coming through in Niaga and also Singapore. Wholesale Banking overall had a very strong performance during the year, driven mainly by the top line -- very strong top line growth, mainly attributed to the client franchise business delivering that strong PBT growth of 21.5%. However, on a Q-on-Q basis, because of the very exceptional third quarter on NOI, that translated in some weakness on a PBT basis Q-on-Q. CDA & Group Funding, very strong top line growth on a year-on-year and Q-on-Q basis. On a Q-on-Q basis, that further contributed as well by lower OpEx. PBT by country, the underlying strong business momentum in Malaysia has translated to a very strong top line growth that I mentioned earlier at about 9%. However, this is partially offset by some of the conservative provisioning that we did in Malaysia, in particular, in the fourth quarter, and that impacted the fourth quarter Q-on-Q growth on PBT in Malaysia. Indonesia overall was a challenging market for the year, especially on the top line growth. And as a result, on a year-on-year basis, we are stable in terms of the PBT. On a Q-on-Q basis, a tougher NOI resulted in the PBT coming off by 6% Q-on-Q. Thailand, both Q-on-Q and year-on-year benefited from lower provisions, is even more so on a Q-on-Q basis as we had a significant write-back on the legacy corporate NIM related to COVID. So that came in, in the fourth quarter of recoveries. Singapore did very well on all across P&L lines on a year-on-year basis, especially on the top line where it grew by 20%. On a Q-on-Q basis, however, that is weaker because there was a net write-back coming through in the third quarter of the year. On Slide 15, a breakdown of our P&L operating income. I'll talk a bit about the fourth quarter, but I'll focus a bit more on the year-on-year basis. And here on the slide, I'll focus on the NII line. If you look at it from a Q-on-Q basis, the 2.9% was really impacted by our margins coming off by 6 basis points. If you look at the attribution, Malaysia was a contributor to that decline. This is due to the seasonal factors that we typically see during the fourth quarter, both on the retail and also on the wholesale side. Our cost of deposits did pick up by 4 basis points Q-on-Q, resulting in that NIM pressure in Malaysia by 5 basis points. Indonesia, the margin contraction on a Q-on-Q basis is mainly, again, driven by some seasonal impact. But in Indonesia, we did see competition also being relatively stiff during the fourth quarter. Thailand is mainly due to a one-off recognition impact during the third quarter, which inflated slightly in terms of the margin, coupled with the fact that there was some timing difference that was negatively impacting our fourth quarter coming off from the rate cuts. Going forward, we should see us recouping some of this impact -- negative impact in Thailand as we start to reprice our deposits. Singapore remains fairly stable despite similarly some rate movements negatively. But because of our liquidity remaining relatively flush, we managed to sustain some of the margins in the fourth quarter. On a year-on-year basis, a very good growth on NII at 5.3%, driven by the stable margins -- relatively stable margins that we had on a year-on-year basis. I think it's important to highlight, if you look at our NIM banking book, that expanded on a year-on-year basis by 4 basis points. And this is a reflection of our overall approach across all our markets in terms of having a deposit-led strategy and also in terms of being very disciplined in terms of our loan pricing. So if you see the breakdown by countries, Malaysia expanded margins by 5 basis points, driving Malaysia's NII growth by 8.2% year-on-year. Indonesia, because of the very tough backdrop, margins did compress by 31 basis points. Thailand, due to the consumer finance business in terms of the lower yields and also our bond book growing during the 2024 period, we did experience a margin contraction. Singapore is a good outcome where, even though we did see the yield rates coming off because of the flush liquidity, we managed to sustain our margins at 1.41%. Moving on to NOI, again, similarly, in terms of the year-on-year number, this is a good outcome given our focus on the client franchise business. So this is mainly driven by the trading and FX line. Breaking that down, we started breaking this down since last quarter, you can see our client franchise or the sales number outpacing the trading number, growing at 17.4% year-on-year. So very strong growth despite the fact that during the fourth quarter, this normalized back, in terms of the trading and FX number, normalized back to the MYR 800 million sort of mark. We did have a very exceptional third quarter on the trading and FX line. If you look at back into some of our quarterly numbers, this MYR 800 million mark or so is similar to fourth quarter 2023 in terms of the trading and FX line. Another point here that I would like to highlight, if you look at under others, that showed a drop of 21.3% year-on-year. In 2023, we had a larger NPL sale gain of MYR 310 million compared to 2024 of MYR 160 million. Fees and commission is well supported, and that's mainly driven by very strong growth on GW -- Wholesale Banking of about 10% year-on-year. Slide 17, on OpEx, like what Novan mentioned, we exercised a very good cost control, delivering an overall growth of 5.6%. On a Q-on-Q basis, that came off. So if you recall, in many past years, there was some seasonal impact that comes through in the fourth quarter where there's a significant pickup. We did see that again in marketing and admin and general line where there's seasonal fourth quarter increase in costs. However, this is more than offset by personnel costs coming down because we took a lot of the bonus provisions in the third quarter instead of the fourth quarter. So overall, year-on-year, we continue to invest in technology, like what Novan mentioned, where we grew 8.5% year-on-year, driving that overall cost increase. Personnel cost also was impacted by the inflationary pressure. And also, we do accrue as negotiations develops on the collective agreements, driving that 6.9% growth on a year-on-year basis. So overall, with a strict cost control, we are recording a good positive JAW of 20 basis points, improving to slightly to 46.7%. Next slide, Slide 18, on provisions. I think from an overall perspective, provisions, the underlying asset quality remains good. There are no areas where there are significant increases either in delinquency or provisioning. Like what we have always highlighted, between segments, there could be some volatility as we manage the overlays. So you can see here on a Q-on-Q basis, in the retail space, firstly, the increase to MYR 507 million. This is really driven by the timing of how we reallocate some of those overlays either embedded into the provisioning or into new forms of overlay. But in essence, on an underlying basis, there is no increase in terms of the underlying provisioning on the retail segment. On the non-retail segment, despite it being relatively stable, I think within that number, we also took some conservative provisioning on a portfolio basis, both in Malaysia and also Singapore. That is to offset some of the high write-backs because, if you recall, last quarter, this level of write-back of MYR 340 million was also relatively high coming through from Singapore, which is related to a COVID oil and gas name. Whereas this year -- this quarter, that came through in terms of the write-back from a Thai COVID-related name. So overall, on a year-on-year basis, you can see our write-backs is higher compared to last year by about MYR 200 million, and this is driven mainly by Singapore and Thailand. The non-retail side coming down lower because in 2023, we did do some top-ups on the Malaysia leisure sector and also Indonesia infrastructure sector. And the absence of that is driving a lower number on the non-retail side. On the other hand, on the retail segment, this is where we are managing the overlays proactively to retain a lot of the overlays that we have. And this is really due to the timing of reallocation of the overlays. On an underlying basis, consumer, on a year-on-year number, it remains stable to slightly improving. And that is a reflection if you -- that is reflected, you can see on the subsequent slide, Slide 19, especially on the gross impaired loans ratio. We have managed our asset quality very well, and that has now come down to 2.1% compared to 2.7% last year on Slide 19. And a big driver of that is coming through from Malaysia and also Indonesia, both on the retail and non-retail side, with credit cost maintaining at a good number of 25 basis points, driving our loan loss coverage at a record high of 105%. Moving on to the balance sheet. So on the gross loans, we were impacted by currency. So on a constant currency basis, we grew on a year-on-year basis at 4.8%. On a reported number, it is at 2.6%. So 2 things: one, of course, on the currency side; but secondly, we are taking a very disciplined approach, especially on Corporate Banking, Wholesale Banking in terms of the pricing and loans. However, we did see this significantly picking up in terms of momentum in the fourth quarter, where the loans grew by 2.4% on a constant currency basis, driven mainly by Wholesale Banking, and this is across our key operating markets. Consumer and Commercial Banking, also in terms of momentum, picked up in the fourth quarter. On Commercial Banking, that's mainly coming through from Malaysia and Singapore; whereas in Consumer Banking, the pickup was really across all our key operating markets. So overall, on a year-on-year basis, you can see our disciplined approach on Corporate Banking, in particular, in Malaysia, impacting the growth, where it's fairly stable. The drivers is mainly coming from our Commercial Banking and Consumer Banking where, within Consumer, we are still growing well at 5% year-on-year Consumer Malaysia. So if you break that down into Malaysia, that 3% growth, Consumer is growing well at 5%. Similarly, Commercial Banking is growing at 8%. The offset is really coming from Corporate Banking being lower year-on-year. Thailand is driven by our Consumer. Indonesia is driven across our segments. In Singapore, the 11.4% is mainly driven by the non-retail side as we did face some stiff competition on the retail side in Singapore. Slide 21. The main point here is the fact that our momentum and our drive on CASA has come through, both on a year-on-year and Q-on-Q basis. So on a year-on-year basis on a constant -- on a reported basis, CASA went up strongly at 7.7%. Good momentum coming through in the fourth quarter across our operating -- our business segment, driving our CASA ratio to improve by 90 basis points to 43.1% year-on-year. And you can see the breakdown by country. All the countries is showing a good improvement on CASA ratios on a year-on-year basis. On dividends, on Slide 22, so we've maintained our second interim dividend as per the first interim dividend at MYR 0.20. And this is equivalent to a 55% payout. We are paying out in terms of dollar value, a record number of MYR 5 billion, and this is giving us a good yield of 5.7%. And this is very closely linked to the next slide, Slide 23, where our capital ratios remain strong and stable at 14.6%. And if you look at our LDR and also LCR, both has remained stable on a year-on-year basis where we maintained a deposit-led strategy during the year. Moving on to Slide 24 on performance by segment in a bit more detail. Firstly, on Consumer Banking, here, you can see some of the conservative provisioning coming through in the fourth quarter impacting the Q-on-Q PBT performance. In addition to NOI, we did have some lumpy recognition of income last quarter in Indonesia and mainly in Malaysia, some of the credit card fees were impacted. On a year-on-year basis, very good growth on NII, driven by expanding margins on consumer. However, this is offset by higher provisions due to the timing of our conservative provisioning on a year-on-year basis as we manage the overlays. On Commercial Banking, on Slide 25, if you look at it on a Q-on-Q basis, that is positive due to the write-backs coming through in Indonesia and Singapore. Similarly, on a year-on-year basis, the improvement in terms of PBT is driven by lower provisions in Indonesia and also Malaysia. The good growth on the balance sheet side is driven mainly from Singapore growing at 28% year-on-year, coming off from a relatively small base. Malaysia also growing very well at 8% year-on-year. I would like to highlight, on the deposit front, CASA in Indonesia grew 19% year-on-year on the Commercial Banking space. Slide 26, Wholesale had a very good year. You can see in terms of the top line, mainly driven by the NOI contributed equally in terms of the franchise sales income at 16.6% NOI growth. Further contributing to the PBT, as mentioned, is the write-back coming through in Singapore and also Thailand. Like I mentioned earlier, you can see here that the NOI came off due to the very strong exceptional trading and FX in the third quarter. If you look at net loans on an overall basis at a regional level, that is flattish. Good growth in some of our markets. However, this is offset by a very disciplined approach in Malaysia, where Malaysia Corporate Banking loans contracted year-on-year. Slide 27, CDA & Group Funding, very good growth on NII, driven by mainly Philippines. If you look at the Q-on-Q performance, there was a lower OpEx because of some of the central provisioning on bonuses that we took during the third quarter, similarly on a year-on-year basis. If you look at the indicators, that still remains very strong on CDA, both on Touch 'n Go Digital and also Philippines where the growth is still very robust. So translating that to some of the benefit of that positive trajectory, if you go into Slide 28, the narrowing of the -- or the improvement of Philippines has contributed to the group's ROE expansion. So for this year, that further contributed 12 basis points, similar to 2023. And this is a result of the very robust top line growth now touching close to MYR 750 million. Lastly, on Islamic Banking, on Slide 29, it was -- during the quarter, it was impacted on the conservative provisioning on the consumer side. On a year-on-year basis, a very strong growth on the PBT line, driven by the margin expansion that we experienced in Malaysia growing at 10.8% on the NFI line. The momentum on the financing improved further during the quarter, growing at 2.5%, so growing at 8.6% year-on-year. So that's the end of my presentation. Thank you, and I'll let Steven moderate to take questions. Thank you.

Thank you, Novan and Khairul.

We will now begin the question-and-answer session. [Operator Instructions] [Technical Difficulty]

Can you hear me? Okay. I think there's some problem. I can't hear you guys, but you can hear me. So firstly, I think congrats on achieving the -- can you guys hear me or no? Okay, cool. Fantastic. For some reason, I can't hear you guys. So firstly, I think congrats on achieving the FY23+ targets. The first question I have is just that I think there was a lot of discipline on loan growth in 2024, and we have a very clear focus on preserving margins, right? But I think as a result of that, you also lost market share in several segments in the industry. So I'm just wondering that are you thinking of closing some of this gap with the peers in 2025? And if yes, then will you also be willing to sacrifice some margin from a net interest margin perspective? That's the first question. And then I have a few more follow-ups.

Can you hear us, Aakash?

Yes, I can hear you now finally.

Okay. All right. So just to repeat your question because it was a bit choppy for us, so you recognize that we were very focused on margins. And the question is, moving forward, are we willing to sacrifice that for loan growth? Was that the question?

Yes. And to maybe more from a market share gap perspective because I think some of -- in certain segments in the market, your market share has -- you've lost market share, right? So the gap has opened up with peers. Will you be looking at that and aiming to close it?

So first and foremost, rather than being driven by a NIM, our strategy is all about ensuring that the franchise bring in the deposits. That is number one, right? So franchise, meaning from the consumer bank, the commercial bank and the wholesale bank, we want to bring in the deposits from our clients. And of course, we want to bring the deposits in the most cost-efficient manner. These deposits is then the raw material for us to then provide our loans. So that is the first and foremost, what our strategy is premised on rather than targeting certain levels of NIM. Now once we've received the deposits, we then need to deploy that in loans in various segments, and the strategy within those segments also differ. On the Wholesale Banking side, for example, we are very focused on our client profitability, the client franchise. So when we service our clients, it's not going on a silo product approach. We are going as a one-bank approach. So for every client, we want to do all the wholesale products, loans, cash, treasury, investment banking. How we choose to use loans within that client segment will pretty much depend on our strategies with each of those clients, what solutions do they require. So that is basically how we play on the Wholesale Banking side. Now on the Consumer and Commercial Bank, slightly different because that requires a loan engine to go out there and reach out to the market. And within that market, there's various customer segments. And within that various customer segments, there's also various products. Some products are quite stand-alone loan, but a lot of the products today actually also involve the cross-sell of cash treasury or investment products. And we want to make sure that as we go forward, we are very, very focused with regards to the client segmentation that we approach and, within each client, how can we maximize our service with them to basically serve their needs. So it's -- our strategy is premised pretty much on this approach rather than trying to target certain NIM numbers.

Okay. I understand. And I think then a follow-up to that is you mentioned -- you talked about this healthier loan growth for ASEAN in one of your slides earlier on, right? And I think it makes a lot of sense. But I wanted to ask you, are there any top 2, 3 areas in your mind which might be driving this growth? One of them, is it related to the data center investments that we are hearing a lot about in Malaysia? And is there also like an implicit assumption here that liquidity or deposit pricing will be better than 2025, which will help you drive that outcome?

So that would differ depending on the markets. Yes, we are very positive about net-net ASEAN as a whole. Now within ASEAN itself, we see, first, each country and then within the country, the various corporates that operate within the country responding slightly differently to the bifurcation that we're seeing as a result of the geopolitical side. So for example, on the Malaysia, there's a lot of focus on the technology supply chain, in particular on the value-add side with regards to the supply of chips. That is an area of focus coming out from the current geopolitical tensions. We are then engaged discussing with our clients with regards to how they can navigate the situation and take advantage of the technology supply chain side. Down on the south of Malaysia, together with Singapore, there's also a lot of discussions with regards to the Johor-Singapore Economic Zone. And we are engaged in discussions with our clients on both sides of the border, whether is it in Malaysia or whether is it in Singapore, to try to take advantage of the benefits that's being offered within that special economic zone. Moving on to other markets, Indonesia will be responding to this slightly differently. Thailand will be responding to this slightly differently. And we are in close discussions with all our clients to navigate those situations within the markets and within the industries that they operate in. Your next question on liquidity, and then that also differs by market, right? Malaysia is seeing a much better liquidity situation versus 2023, and that is as a result of various factors. You saw last year the repatriation of profits from abroad by the government-linked investment companies that added a lot of liquidity in the market. We're seeing also a lot of FDI being announced. In fact, we have been in discussions with a number of MNCs who are part of all those large FDI announcements to basically come into the country, whether is it in the data center space or whether is it in the renewable energy side. We're also seeing increased investments by the government-linked companies within the economy domestically via the GEAR-uP program, which was announced sometime towards, I think, the mid to third quarter of last year. So there are a number of initiatives being done within Malaysia that we see could potentially improve the liquidity situation. If I then look at Indonesia, things look a bit different. It was a very challenging year liquidity-wise for the whole Indonesia market last year, and that challenge still remain as from where we sit today. There is a huge requirement from the government to raise funds to fund the growth that they are planning in Indonesia. As a result, the government coming into the market to raise funds will compete with the banks. It will suck out some liquidity. And therefore, I think the liquidity tightness in that market, at least from our vantage point, sitting where we are today, still remain quite challenging. So it's very different with regards to how we're seeing each of the countries that we operate in respond to the current new world order. But we are making sure that we are in very close discussions with all our clients to basically help them navigate those situations accordingly.

So with that backdrop, so in terms of numbers, right, Aakash, where we are seeing in terms of the balance sheet side, we do expect loan growth to accelerate in 2025 compared to what we recorded in 2024, and that's mainly driven by Malaysia. So at a group level, we are looking -- expecting or projecting a loan growth of between 5% to 7%, and that's mainly coming from an improved momentum in Malaysia. So in Malaysia, we are looking at 5% to 6% loan growth. As you've already seen during the Niaga results, we are guiding the market for Indonesia of 5% to 7% loan growth, so very similar sort of loan growth that we had in 2024. So the real acceleration is coming through from Malaysia, and that's linked to what Novan highlighted in terms of the backdrop and opportunities coming through from there. And just linking back to that liability question, just in terms of Malaysia, we have built very good liquidity in 2024, in particular in the fourth quarter of the year. So this puts us in a very good position as well. And given the backdrop of what Novan mentioned in terms of the liquidity environment in Malaysia, which remains fairly stable, hasn't intensified, that then puts us in that good position to accelerate the loan growth within Malaysia.

Okay. Great. That's very clear. I've got a couple more quick questions. The first one is there was this change to LCR regulations in Q4 of last year. We heard it from some of the other banks where I think the regulator is more focused on daily LCRs as opposed to averages over periods. Does that change anything for you? Or do you think -- does that have any impact on the system deposit pricing this year?

I think as a sector, I don't think it will have an impact because if you look at the industry LCR, there's no change in the LCR, right? Fundamentally, there's no change in the LCR calculation. It's just the way that it is reported, which is on an average basis versus a quarter-end basis. So now the reporting is standardized. But I think from our perspective, in terms of the tracking, it doesn't change the way we track against the LCR number. So to answer your question, in short, I don't think it will impact the pricing because if you look at the LCR across the board, it remains fairly comfortable above the regulatory requirement. Everyone is -- anything between 130% to 150%. So no one is going to be chasing for deposits because of the change of the reporting. The calculation is the same.

Yes. But does that reduce some of the volatility? Because I think towards the year-end, we used to see a lot of pressure on deposit pricing because some smaller banks who are not meeting those requirements would like to meet it just towards the year-end, right, which now will be spread out to the whole year. So maybe it reduces that volatility, do you think?

Potentially, it will. Potentially, it may reduce the volatility, but we didn't see that coming through in the fourth quarter. I think the volatility will have to be a bit more -- to reduce the volatility, I think it will have to be a bit more fundamental.

Okay. Understood. The last question I have is just when I look at your CASA growth, which has been pretty impressive, so you keep on this strategy of deposit strategy that you have, CASA really coming through, but it doesn't really correlate directly with the funding cost. So if you look at a CASA versus funding cost correlation, it doesn't seem to be the benefit coming through to funding cost as clearly. So what I was wondering was, is it -- do you have a sense of like out of this CASA, how much is really the low-cost CASA? And how much is probably that doesn't fall in that low-cost bucket?

So the CASA growth is mainly coming through in December. So we only benefited broadly for most part of December. So we didn't get the full benefit during the quarter. To answer your question specifically, these are low-paying CASA in Malaysia, Singapore and Indonesia. Where we are slightly paying up is only in Thailand.

Yes. And Aakash, I think at the end of the day, the benefit of the CASA also is the flexibility that it provides. If rates were to come off, and we've seen that already in a couple of the markets this year, then that provides us that flexibility to also adjust rates as opposed to being locked in via a term deposit.

We have another question from Harsh at JPMorgan.

A couple of questions. First, on the asset quality -- more than asset quality, sorry, credit cost guidance of 30 to 40 bps for 2025, could you talk a bit where is it coming from? What are the areas where you expect it to go up? Is it more to increase coverage? Or you are seeing some issues? Any granularity on both the geography as well as sector would be useful. I'll have a couple more follow-ups.

Yes. So if you look at the credit cost guidance, 30 to 40 basis points, we break it down into the countries and where the normalization is actually happening, right? So firstly, in Malaysia, we are expecting stable credit costs. So Malaysia, we are looking at 15 to 20 basis points, so very similar to what we recorded last year. Similarly, in Thailand as well, we do expect credit cost to be fairly stable year-on-year. Where the normalization, and it's where I stress the word normalization is not the fact that we see any stresses in any segments, firstly, is Singapore. Singapore, in 2024, recorded a net write-back, a significant net write-back. And the absence of those write-back results in the overall group credit cost increasing. In Niaga as well, some slight normalization because if you look at 2024, Niaga reported a credit cost of 84 basis points. We are expecting that to normalize to just under 100 basis points.

Got it. A bit more on Niaga and Indonesia liquidity. Finally, we are starting to see IDR NDF breaking out. The onshore large-cap bank reaction tells us that there is significant risk building up. You have a decent franchise, you're fifth largest bank there. How are you thinking about growth and liquidity, so margin, and frankly, asset quality risk in that market in the next, let's say, 6 to 12 months? Because with such a tight liquidity situation, do you -- can you still grow? Are you even looking to grow? Or can that be one of the places which can lead to -- can be a source of negative surprise in course of 2025? And related to that, I have a follow-up at a group level.

Okay. I'll start first and then, Khairul, you can jump into some of the numbers. So Niaga, like our strategy throughout the group with regards to deposit-led, the focus is going to be for all business units to bring in the deposits. And you're right, we're the fifth largest franchise. We have a very strong client franchise over there. We need to make sure that we are servicing our clients from a TR perspective in order for us to provide them solutions that make sense from a TR perspective for us to get those deposits. So the first strategy is every business unit is tasked to go out there and get deposits. One pivot that we did last year in Niaga, and we are monitoring how this strategy is working, is we're now using the branches in Niaga not just to service the consumer bank, but it also services the entire bank. So our branches and distribution channels in Indonesia today service the Consumer, the Commercial as well as the Wholesale Banking clients. The branches are acting as deposit collection centers. And while we may not appreciate the significance of this in Jakarta or some of the larger Tier 1 cities, but when you go out to the Tier 2 cities, it makes a big difference. Our 400 branches in Niaga is out there serving as collection -- deposit collection centers for all customer segments. We're seeing some positive traction, which is resulting in the numbers that we're seeing in Indonesia today, and we are financing that strategy as we go along. So we are a big believer that this strategy is working in terms of getting the deposits. Now once we get those deposits, Harsh, then we need to mobilize that into loans and as well as other cross-sell products. And that is where we will highly rely on our client franchise.

Yes. So in terms of the numbers, and that's why I think -- I mean, the strategy is critical and to mitigate some of the headwinds that you mentioned or risk from an industry perspective. So we are looking at -- and that's why, this year, our range on the margin is slightly bigger. We're looking at 3.9% to 4.2%. So coming off from 4.1% last year, so it's a minus 20 to a plus 10 basis points margin guidance that we are giving. And this is, of course, depending on the backdrop and also the execution of a deposit-led strategy, which will then drive these margin projections.

But then the follow-up would be, we all hope that liquidity situation improves. But in case it does not, if I think about your ROE guidance of 11%, 11.5%, it seems conservative. I would have expected, with all the work, the number would be a bit more higher, but I understand the risk coming from one of the biggest markets, 1/4 of your balance sheet is in Indonesia. In case things do not pan out well in terms of liquidity, what are the other levers you have to still get to 11%, 11.5% ROE? And the reason is simply because Niaga is such a big part of your franchise. I'm just trying to understand what are the places where you can juice up a bit more to offset some of the potential risk there.

Yes, it's a good question, Harsh. And it is a real challenge, right, with regards to the liquidity situation in Indonesia, which is impacting all players. But this is where we go back to the fundamentals of our levers. One is always on the cost side. We've demonstrated in the last 5 years that we're very disciplined with costs. We do not like wastage. We are all about efficiency. We are going to continue on that journey. So that will be sustained. And how we think about cost is really on a cost-to-income ratio basis. If the income comes down, then we need to drive down -- we need to work to drive down the costs. The other angle is on the cross-sells, the NOII, right, where we have 31% ratio today across the group. NOII grew 8% for us year-on-year, and a lot of that we were seeing coming from our client franchise business. Treasury client sales grew 17%. We want to focus a lot more on the cross-sell as well, and we have been, right? We want to leverage off our ASEAN network business. We're not just present to do local, local business within each country. We are focused on doing that cross-border business, the cross-border income, the cross-border trade. Today, 10% of the income that we make from our corporates are cross-border in nature. But ASEAN intra-trade is about 25%. Why aren't we hitting the 25%? There's a lot more that we can do. So the levers really are on cross-sell and costs, being disciplined with costs. But on the cross-sell side, it's not just the local, local business, but it's also the cross-border business where we believe there's a lot more upside.

And if I may, just last one. Adequate capital buffer, 14%, payout guidance of 55%. Is that a potential lever that you can use if ROA doesn't measure up? I'm only trying to -- basically, what I'm trying to get to, Novan, is this 11% to 11.5% ROE, how much of this is based on market assumption? And how much is based on -- as in what kind of degrees of freedom you have even if market goes against you?

So at the moment, in our projections, we're not projecting any changes or alterations that we make to our capital base. But look, at the end of the day, we are -- we need to be vigilant with capital. Capital is scarce. If there's excess capital and it's not being deployed to generate returns to shareholders, then we need to return or pay out that capital to shareholders, right? I mean that is how we operate our capital, and we've proven that in the past with the 2 rounds of special dividend. We've not projected that yet. Of course, if needed, that is always an area that we will look at. There are some constraints because we are present in many markets. In that many markets, the local regulators require certain capital requirements, but we're always in active discussions with all our local regulators with regards to the level of capital that we can keep. So no, we have no plans to want -- or no interest to want to keep excess capital around. Capital is scarce. We want to optimize, but we're working within those constraints.

The next question we have comes from Desmond from Maybank.

Just a quick question for me. Could I just get the guidance on NIMs for this year?

Yes. So on margins at the group level, we are expecting between stable to minus 5. And I think it's worth just putting some color into that. In Malaysia, we are expecting broadly stable, right? In Niaga, I've given the guidance just now to Harsh. In Singapore, because of the expectations of the rates and what we have experienced in 2024 in Singapore, we do expect some margin compression in Singapore, not large, but some, and also in Thailand. So the stable to minus 5 basis points at the group level is really driven by Thailand, Singapore and Indonesia, but Malaysia is very stable, yes.

Our next question comes from Yong Hong from Citi.

I just have 4 questions. The first question, I think, is a follow-up on the outlook. If earnings is flat in 2025, I think you took out your payout ratio guidance. Are you flexible with your payout ratio just to give shareholders some dividends growth?

Yes. So we are very, very vigilant with regards to capital management, right? I mentioned earlier that capital is scarce. We don't like excess capital lying around and that capital is not generating the returns for our shareholders. So if that is the scenario, then we will look at our capital positions, but subject to also how we navigate around the local regulatory requirements in each of the markets that we operate. Because the different capital requirements for each market, it's not just held at one entity. So therefore, we need to navigate around that.

Okay. Maybe something related to that. Could you remind us on the impact from the Basel reforms? And when would that kick in to the next 5 years?

Yes. So I think the first one is on ops RWA. So that has kicked in from January this year. The impact to the group is around minus 5 basis points, so very marginal. Then going -- looking forward, 2027 will be the big one. For now, it is quite a good, positive impact, and this is coming from the credit RWA. In particular, if we base it on BIS, the treatment on the corporate credit will be positive. Bank Negara will come up with the exposure draft sometime in the first half of the year. So we'll see whether that's in line or not to BIS. The third signpost is further out in 2030, and that is the market RWA. And for now, it is a bit too early in terms of concluding on the impact. I think we need a bit more conversation and engagement with Bank Negara on the market RWA impact in 2030. As it stands, that will be a negative impact to capital.

Okay. Maybe on NOI, any guidance on that, including fees, trading and FX? Or should we think that the NOI growth will be a medium-term ambition as you push that cross-selling culture to the bank?

I would think about it from a -- I guess, from your perspective, from an NOII ratio perspective, so today, we are at 31%. I think the top player in Southeast Asia is 35%. Why not for us to go and try to be closer towards the best-in-class. So that is a challenge that we give ourselves, and that will be executed in a sustainable manner. So it's 31% today, we want to do better than that.

Okay. Got it. And maybe just the final questions. Any numbers you can share in terms of your DC exposure? Maybe not yourself, but are you seeing any lending from some banks to borrowers building DC without sizable customers?

Sorry, you were asking about the loan pipeline or what was it? You were breaking up.

Yes, just wanted to hear any numbers you can share in terms of your own DC exposures to your borrower. And maybe not yourself, are you seeing any lending from some banks to borrowers building DC without having a full pipeline of customers?

Yes. So there's a number of situations right now that's being discussed in the data center space, and we are in the middle of it. But pipeline-wise, I think it's about...

MYR 5 billion, close to MYR 5 billion.

MYR 5 billion, is it?

Yes. So far, we booked MYR 1.4 billion. Pipeline is about MYR 4 billion to MYR 5 billion.

And maybe just on the ground, are you seeing any bank lending already to borrowers building DC without having a strong pipeline of customers?

Meaning that DCs don't have off-takers, is it?

Yes, something relating to that.

No, I mean, at the end of the day, this is infrastructure lending, Yong Hong. When we lend to a data center, there needs to be off-takers, so no different than infrastructure lending to a power plant, for example.

We currently do not have any more questions. Does anyone else -- yes, hang on. Harsh has a follow-up question. Harsh?

Yes, might as well. This is on data center. What are the risks there in terms of -- to the point that was made earlier with Yong Hong, that Chinese hyperscalers versus U.S. hyperscalers, speculative build versus dedicated customer build, so that you kind of answered. Are there GPU-based data centers that is CPU-based data centers because GPU can vanish tomorrow morning, there is a risk of that, how have you evaluated? What has been your criteria of evaluation? And is that something which worries you? Or because I sense your growth was slightly slower, you were already very cautious of those bids. And hence, it's -- while it can be an industry issue, you guys are better positioned. Like any more details on that would be great.

No, it's a great question, Harsh. We also ask ourselves these questions as we deliberate the credit very diligently. And we consider all the factors that you just articulated. I guess one of the biggest risks, of course, is always off-taker, right? Because these are longer-term financing, there are off-takers on the other side. Question is, what happens to the off-taker if the off-taker disappears? So we do a lot of analysis on that, a lot of analysis on who those off-takers are, which is why we've been very selective in this space. But at least if I take a more broader view of the sector, at the end of the day, demand for data centers will likely not fade away. I mean, AI, Gen AI, all these are here to stay. Genie is out of the bottle. We need it to service the human population, which is shrinking. So I don't think demand for this will go away. There will be different suppliers. There will be different technology, as we saw from DeepSeek, but the demand will not go away. And if the demand doesn't go away, then the supply basically will always be there, but the off-takers may change. So that is a more, I guess, broader view of the sector and the sector that it serves.

Right. And when you are financing some of these, are you financing just the infrastructure part of it, like the building, the land acquisition, all of that? Or are you also financing the servers? Because my understanding is some of these hyperscalers, they just put in their own servers and it's the shell which some of these contractors pull in. Again, there's a lot of different models. But to what extent do you have a risk, to put it simply, in case there is some kind of tighter restrictions on GPUs in particular, in case that happens?

Yes. I mean it's a capital -- it's financing to basically service the capital expenditure to develop the data center. And therefore, that consists of many components. And we not only focus on giving the financing for the data center, we want to do the wholesale business with regards to the data center itself. So whether is it the operating account, whether is it any treasury requirements, whether is it going to be a syndicated loan where we syndicated -- where we will syndicate out the race, whether is it going to be a bond offtake eventually or bond takeout eventually, so we look at the entire wholesale needs for a data center. I mean regarding the specifics of the capital expenditure, I mean, it's various parts. But yes, the large part is really down to the construction.

I think, yes, that's all the questions we have. I'll pass the line back to Novan for his closing remarks, including reminding everyone of the Investor Day this week.

Okay. No, thank you very much, everyone, for joining us on a Friday afternoon. Really appreciate your time. I think if I were to summarize 2024, it was a year where we were nimble and we pivoted our strategies given the challenges that we see in the market. And we'll continue to basically be nimble and vigilant to respond to changes that we see in the market, especially on the geopolitics space. But look, at the end of the day, we delivered 11.2% ROE on the back of a 6.1% income growth, which, in my view, is sustainable. And we also increased our liquidity positions. Our LDR is down to 88%, giving us that firepower and liquidity to fund the healthy loan growth that we're seeing in 2025. Yes, there are challenges in the various key markets that we operate. We discussed Indonesia to some extent. But we're very clear that we are going to stay the course on our deposit-led strategy. We're not going to change. We're very clear that we are a bank, deposit is our raw material. That raw material is used to then produce loans and other assets. So we are going to stay the course of this deposit-led strategy. With that, thank you very much.

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