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

Hi. Good afternoon, everyone, ladies and gentlemen. Welcome to CIMB Group's financial results briefing for the second quarter of 2025. Our host today for CIMB Group is the CEO, Novan Amirudin; and Group CFSO, Khairul Rifaie. My name is Steven from the CIMB IR team. You should have received the analyst presentation and financial statements by e-mail by now. Otherwise, you may find the documents in the Investor Relations section of our website at cimb.com. Before we begin, please be informed that this briefing is recorded. I would like to encourage everyone to include your name and company on the Teams app to allow us to better find 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, and thank you to everyone for joining us on this Friday afternoon, which is approaching towards a long weekend for those in Malaysia. It has been a resilient first half '25 performance for CIMB Group. I would call it a perfect storm of macro headwinds, increased volatility, but more specific to CIMB itself versus our other listed Malaysian peers, FX translation effects that we observed during this period. If you track, for example, the rupiah, ringgit exchange rate, for the first half of '25 versus first half of '24, it did depreciate more than 6% and Indonesia being 25% of our business, that FX translation effect did have an impact on our overall consolidated numbers. So although on a reported basis, you would see net profit down by about 0.9% for the first half of '25. But if you look at it on a constant currency basis, we are up 3.3%. And what this means is the business engine is still working. The businesses are still increasing number of customers, increasing cash, increasing AUM. We still have asset growth, but it's more on the currency side versus our other listed Malaysian peers. But -- and you will see later in the presentation as Khairul goes through each respective country, Malaysia actually stand out as a top performer within our portfolio. NIM has expanded 4 basis points as a result of our deposit-led strategy. Income is up close to 4% year-on-year and PBT up more than 7.5% year-on-year. But Khairul will basically take you through those details later. Now back to our first half '25 overall performance. So we delivered 11.1% ROE. And the key drivers are: number one, our second quarter '25 operating income grew 1.9% quarter-on-quarter. And this is on both NII and NOII increases. PPOP increased 4.5% quarter-on-quarter. Now why this is important? The quarter-on-quarter increase shows that our momentum is basically improving when you compare to the first quarter with all the heightened volatility involved. So we're very pleased to see the improvement in terms of business momentum when you look at quarter-on-quarter. So while year-on-year, there are FX translation effects, but when we dissect into quarter-on-quarter, we're seeing a much stronger momentum. Now when we look at NII itself, that's up 0.4% quarter-on-quarter despite the continued rate cuts that we have seen in Indonesia, Thailand and Singapore. And I would credit this to our deposit strategy and our active cost of funds management, where we've managed to hold NIM steady at 2.15% in the second quarter of '25. This is now three straight quarters where we've managed to hold NIM steady despite the aggressive rate cuts that we've seen in those three markets. To balance up the rate cuts, apart from reducing cost of funds, we also grew our asset base. Total assets on a constant currency basis grew 6.1%. Of that 6.1%, loans grew 3.6%. But per our strategy from last year, we ensured that it was responsible growth and we did not want to compromise asset quality. And if you dissect further into our loan numbers later with Khairul, you will see that the consumer and commercial engines are still running and growing in line with the respective GDP rates in each of their respective markets. Where loan growth is down is wholesale. But on the wholesale side, we are currently observing two things. One is on the loan side, it's pretty much a timing difference because it depends on when our customers would deploy funds towards CapEx and investments, and we're in active discussions with them on that. And we're also observing a lot of corporates going to the bond markets to raise financing. Throughout Malaysia, Indo, Singapore, Thailand, for example, if you look at the local currency DCM market, that is up 16%, and we have maintained our market share as one of the leading bond issuers in the region. On NOI, that grew 5.3% quarter-on-quarter, and that is really driven by strong trading income of about 10.4%. Moving away from the income line. On the cost side, we continue to exercise cost discipline. Operating costs declined by about 1%, bringing our cost-to-income ratio to 46.2% for the first half of '25. So we're still maintaining that 46% level that we've maintained throughout last year. But this is not at the expense of our investments in technology and operational resilience. In fact, our tech cost-to-income ratio is at 7.9%, which is in line with the guidance that we have been providing to the market where we're going to budget about 8% to 9% of our revenue every year towards tech costs. Asset quality, we continue to ensure that we are disciplined with regards to balancing credit cost, yield as well as our coverage ratios. So we've continued to be reallocating our overlays that brought first half '25 credit cost to about 29 basis points with allowance coverage ratio maintaining above 100%. GIL has improved quarter-on-quarter and year-on-year. It's now 2.1% as of June 2025, reflecting strong asset quality across all markets. I think one market that has gotten quite a bit of attention is Indonesia. You would have seen NPLs coming up in Indonesia, but not the case for CIMB. We continue to demonstrate one of the strongest asset quality in Indonesia with one of the strongest NPL ratios. As a result, we are proposing a MYR 2.1 billion first interim dividend, which is a payout ratio of 55.5%, which is consistent with the payout ratio that we have been paying out over the last couple of years. Our CET1 ratio remains strong at 14.7%. I know there's a lot of discussions with regards to our CET1 levels and what is the right capital level. In our view, this provides us flexibility to optimize shareholders' returns at the appropriate time. I want to provide you some updates in terms of the strategic initiatives that we have done over the last quarter to deliver sustainable long-term value for our stakeholders. I'll start first with what we have announced. We continue to double down on our OCTO consumer app. And what we've really focused on over the last quarter is increasing our digital wealth offerings. So if you're in Malaysia, for example, you can now subscribe to a number of investment products via the app, and we've done similarly also in Singapore and Indonesia. On the business banking or commercial banking side, we have announced a couple of ecosystem plays, one health care ecosystem in Malaysia, involving a couple of anchors where it's a digital play for us to fund players within each of the health care ecosystem players, mainly Pharmaniaga and Remedi. In Singapore, we also launched a shopping mall ecosystem with Frasers. But what is interesting is we've just rolled out a new revenue-based loan in Singapore called CIMB FlexiPay. And this is really looking at our customers' cash flow profile and it will -- and the algo will generate a loan amount that our customers can draw on. Very different from the type of products that you see in the market today. A lot of the SME financing is very collateral based, but we're now -- we now want to start to use data and do more revenue-based financing. So it's a project that we started in Singapore. Johor-Singapore Special Economic Zone, a lot has been discussed about that in the public domain. We have committed MYR 10 billion of financing over the next three years. We are in a lot of discussions with a number of corporates that are looking to expand into the zone. On the sustainability side, we have committed MYR 300 billion of green financing by 2030. With regards to our people, we have committed MYR 100 million this year for training and upskilling in digital and AI. And on the social side, we've committed MYR 200 million to invest in our local communities over the next five years. What is coming next over the next couple of months? First, in October, we're going to launch what we call OCTOBiz. This is a similar digital offering. So it's an app, but it's going to be used by our business clients. So while CIMB consumer clients use OCTO, businesses will use OCTOBiz, it is a far superior app compared to what our business clients are currently using, and we're going to launch this in Malaysia and Indonesia. It's currently undergoing pilot testing. With regards to the ASEAN Business Summit, Malaysia as the host of ASEAN this year, CIMB will be sponsoring the Business Summit in ASEAN in October '25. Recap of our six-year strategic plan, which we call Forward30, which is anchored on our purpose of advancing customers and society. Now how are we going to advance customers and society? We call it the four Cs: capital, cash, cross-sell and capabilities. And we are executing four Cs throughout the entire organization. I'm now going to provide you an update in terms of how are we doing with the execution of the four Cs. First is capital. So we have announced a dividend of MYR 0.1975 per share, 55.5% payout ratio. One area that we've been mobilizing quite a bit of capital over the last few years is on the digital side. Touch 'n Go, which today serves 30 million people in Malaysia and 2 million merchants, has continued to sustainably be profitable throughout the first half of '25. So it started breaking even towards the end of last year and has maintained being profitable in the first half of '25. And the reason really is due to e-money transactions becoming a complementary source of customer payments within the country to complement credit cards as well as debit cards. On the second C, cash, you would see on the table in the middle of the page, Thailand, Indonesia, Singapore went through a lot of rate cuts since last year. But due to our active deposit debt strategy, where we are rebalancing between CASA and as well as term money like fixed deposits and money market deposits as well as alternative funding, we have managed to actually reduce our cost of funds by 18 basis points year-on-year and 10 basis points quarter-on-quarter to mitigate the effect of the rate cuts that is pressing down our loan pricing. So as a result, NIM has remained stable at 2.15% in the second quarter and 2.16% for the first half of '25. The third C, on cross-sell. If you focus on the bottom left-hand side of the page, one data, which I would like to call a leading indicator of growth for our business is number of customers as well as AUM. Number of customers grew 5.4% year-on-year and 0.8% quarter-on-quarter. AUM grew by a larger number, 10.9% year-on-year and 1% quarter-on-quarter. We also saw deposits in CASA grew quite significantly. CASA grew by 10% year-on-year, and Khairul will elaborate further on that. But this data is very encouraging because this shows that as business confidence start to gradually improve and return given the increased level of certainty we're seeing in the market, we do believe that all these new customers that we have onboarded and have parked cash with us will start to put that cash to use, and that is potential future business for us. On the fee and commission and treasury client sales side, we're also pleased to see that these numbers continue to increase. This is what I call client franchise numbers, both growing 2% and 3.3% over the year. We did see some declines quarter-on-quarter for these 2 line items, but it's also attributable to timing differences in terms of our -- what our customers are planning, customers putting on hold certain big decisions as a result of the uncertainties in the last quarter. But now given the increased certainty with the tariff rates announced, we do believe business confidence is gradually improving. On our capability side, the four C, we've continued to remain disciplined with our cost control, but not sacrificing our investments in technology and resiliency. As part of Forward30, we also launched what we call the SBF Lab. SBF stands for simpler, better, faster. And if you go throughout CIMB Group today, everyone will be talking about simpler, better, faster. It's about us making processes and work a lot more simpler, a lot more straightforward. Sometimes we tend to like to overcomplicate things and make things complex for ourselves. We want to cut the bureaucracy and make things simpler, better and faster. We've introduced a lab, which has -- which is staffed by a team that are experts in agile way of working as well as experts in PMO and also the lab contain tools for businesses to come and redesign their processes in the lab. It's a bottom-up approach. So the various businesses across the group at the moment, even though it's just been launched a couple of months ago, 24 projects have been submitted to the lab to redesign their own internal processes. With regards to data and AI, we are now in the second stage of our AI journey. We view the AI journey in four stages. We are now in the second stage where we're deploying role-specific AI assistance. We are now piloting it to support our RMs on the wealth side as well as deploying it in our call centers. Still at the pilot stage and Papa we're tracking the productivity data closely. I mentioned just now about us enhancing our OCTO consumer app over throughout the region, especially on the wealth side. Since the last couple of months of introduction, we are seeing encouraging numbers in terms of transactions that's going through the app on the wealth side. We strongly believe this new capability being introduced will help in our NOI generation moving forward. So with that, that is the report cut of our F30 execution to date with regards to the four Cs. I will now hand it over to Khairul to walk you through the rest of the presentation. Cairo, over to you.

Thank you, Novan, and good evening, everyone. I'll skip Slide 9. Those are the half year numbers, but what I want to elaborate a bit more is on Slide 10, which is the business highlights. So like what Novan mentioned in terms of our quarterly performance on operating income is strong, and that is really driven by a very good positive momentum coming through in Malaysia and also Singapore with Malaysia growing at 4.5% Q-on-Q and Singapore growing at 1.1%. What I want to highlight here as well, you can see on the year-on-year momentum, it is impacted by the FX translation. So you can see the breakdown in terms of Indonesia, mainly because of FX, that came off on a year-on-year basis by 11.1% Similarly, if you look at Singapore, the growth has been fairly flattish. As you can see here, from an overall operating income, if you exclude the FX impact, the growth on a year-on-year basis on operating income is commendable given the challenging backdrop. We grew on a constant currency basis at 2.7% year-on-year. And you can see Indonesia from a negative is recording a flattish sort of growth when you exclude the FX impact. More positively, if you look at Singapore, from a flattish sort of growth, including the reported in ringgit on a local currency basis, Singapore is showing good strong underlying growth on a year-on-year basis at 5.7%, driven by both NII and NOII. On NIMs, as what was highlighted under cash, we have been very active in terms of our liability management. This resulted in the stable NIMs in the past few quarters where it has been particularly positive, driving the stable NIMs is in Malaysia and also Singapore. Moving on to Slide 11 in terms of the segmental PBT. Firstly, on Consumer Banking, the flattish growth is really driven by a very strong in terms of provisions being lower on a year-on-year basis. This was partially but was offset by some margin headwinds coming through on a year-on-year basis. On a Q-on-Q basis, our PBT was down because of the absence of ECL write-back that we recorded in the first quarter as we deployed a new model. On Wholesale Banking, on a year-on-year basis, that's slightly down. We recorded very strong treasury markets operating income. However, this is offset by weaker corporate banking top line. On a Q-on-Q basis, is really driven by the absence of a Niaga write-back last -- in the first quarter compared to the second quarter. On Commercial Banking, the year-on-year variance is mainly driven by the reallocation of overlays. The strong performance on a Q-on-Q basis is really driven by stronger NOI driven by the NPL sale in Niaga that was recorded in the second quarter. On CDA and group funding, both on a year-on-year and Q-on-Q basis is driven by good performance on group funding and also CDA, particularly on the top line. Slide 12 on the performance by country. The strong Malaysia year-on-year growth is driven by what Novan mentioned in terms of the NIM expansion, expanding by 4 basis points, driving the year-on-year NII growth of 7% Asset quality has also been good and stable. And as a reflection of that, ECL was also slightly lower on a year-on-year basis. On Q-on-Q, very strong performance in terms of NOI, growing by 7.7%, driving that PBT performance in addition to some lower ECL in Malaysia on a Q-on-Q due to the timing of the reallocation of overlays. In Singapore, on a year-on-year basis, top line that I mentioned was strong at 5.7%. However, we did have a more significant write-back in 2024. Similarly, somewhat on a Q-on-Q basis, the lower profit is because of the absence of a write-back on the ECL that was recorded in the first quarter that was higher in terms of the write-back. Indonesia, given the backdrop of challenging liquidity, especially in the first half of the year, we did experience a NIM contraction, and that is mainly driving the year-on-year contraction in PBT. As you may have heard already during the Niaga results, the outlook in terms of liquidity has improved, and we are slightly a bit more positive going into the second half of the year. On a Q-on-Q basis, we had a very good momentum on the top line, driven by the NPL sale in Niaga. However, that was offset by the absence of that NPL write-back in the first quarter in Niaga in corporate banking. Thailand, both on a year-on-year and Q-on-Q basis, we have some challenges in terms of the top line. On the quarterly weakness in addition to the top line, we had some one-off adjustments in terms of the provisioning side. Moving on to Slide 13 in terms of the breakdown of our P&L. Firstly, on NII, we are -- in terms of the backdrop, there was a lot of movements -- downward movements in terms of rates. However, you can see in terms of our NIMs, the driver of a stable NIMs that I mentioned is really driven by Malaysia and also Singapore expanding on a Q-on-Q basis. So firstly, Malaysia, the slight expansion of 1 basis points is driven by the fact that we are driving our liability, and we managed to reduce our expensive wholesale money markets. And also the rates on the wholesale money markets was also more positive because of the reduction in volumes. So that helped us expand our margin in Malaysia during the quarter. In Singapore, the 16 basis points expansion, we did experience a significant pressure on SORA. So in the second quarter, our liabilities pricing caught up. There was also some high expensive campaigns on the liability side that came off during the second quarter and therefore, benefited that margin in Singapore. In Indonesia, we did see some pressure on the yields because of the rate cut here, I mentioned in terms of the outlook is slightly turned a bit more positive on the liquidity. We did gain quite a lot of volumes towards the latter part of second quarter with our rates on the liability side being maintained. And therefore, we should see some positive momentum on the liability side. However, we did experience a rate cut a few weeks ago in Indonesia, so that could potentially offset some of that positive. In Thailand, two drivers. Firstly, of course, the policy rate movements did have an impact -- a negative impact in Thailand. But another is a one-off impact as we enhanced our calculation in terms of our effective interest rate, which is more of an accounting calculation. So we need -- because of the enhancement in terms of account level calculation, we had to do a one-off impact of about MYR 30 million, and that impact on the NII and that impacted our margin during the quarter. On a year-on-year basis, so this is the point where we have really proactively managed our liability, and you can see that improvement coming through in Malaysia. And I would say, even in Singapore, that 4 basis points contraction is a real reflection of the fact that we managed to mitigate a lot of the SORA pressure that we experienced during the first half because of the flush liquidity that we have for CIMB Singapore, but also because we've managed our CASA and liability very well there. In Indonesia and Thailand, the contraction is really a reflection of the challenging backdrop and also the significant policy rates movement in Indonesia. So as a result of the margin compression on a year-on-year basis, you can see that 5 basis points, our NII was fairly flattish year-on-year despite very decent asset growth. Slide 14 on NOI. This is where I would describe the momentum as being fairly robust given the high base that we were coming off from during the first quarter. You can see that, firstly, that's driven by fees and others of 11.4% growth mainly on the other income where we recorded during the second quarter the NPL sale in Niaga of about MYR 60 million. Trading and FX, we managed to maintain that exceptional level of MYR 900 million in the first quarter. That continued in the second quarter, and that's really a reflection of our good trading performance, which grew by 10% Q-on-Q. On a year-on-year basis, we were impacted in terms of the other income. And that's why if you look at fees and others that came off by 5% year-on-year. Last year, in 2024, we recorded about MYR 160 million of NPL sale, the bulk of that MYR 160 million coming from Niaga, whereas this year, so far in the first half of the year, we recorded about MYR 60 million. The pipeline for NPL sale is fairly positive coming through in the second half of the year. Trading and FX slightly lower by 2.5%. But what's important that we are tracking, if you look at the client franchise business, it is still growing well at 3.3% year-on-year. On operating expenses, this remains well under control. And if you look at second quarter, that came off slightly by 1.1%. Some of the tactical initiatives that we started at the beginning of the year is starting to come through during the second quarter, and those tactical savings have come through in all those lines of personnel, establishment and technology. So for example, we did look at some of our property portfolio and how we want to optimize the cost on our property portfolio, and that has driven the lower establishment costs. Some of the projects in terms of capitalization and depreciation because of the investments that we are making, we have tactically gotten some write-back coming through under personnel and also technology. So all in all, some of these tactical cost savings has resulted in about MYR 50 million tactical cost savings during the quarter -- during the second quarter. So if you exclude that, even on an underlying basis, our cost has fairly remained relatively stable Q-on-Q. So you can see on a year-on-year basis, it is flattish. The technology cost here on a reported basis is flattish. If you exclude some of the technical cost savings under technology, on an underlying basis, technology is growing somewhere around the mid-single digit, a reflection of the continued investments that we are making under the technology line. What's driving the overall costs slightly higher, if you look at marketing, both on a Q-on-Q and year-on-year basis, that's driven by the increased campaigns that we are doing, number one. Number two, we are also accelerating or putting more intensity in terms of our group branding. And lastly, the revenue trajectory coming through from Philippines has a related variable partnership cost that has increased on a year-on-year basis. Moving on to asset quality. If you look at -- if you look at the ECL numbers, but I think overall, what I wanted to highlight on an overall basis that the underlying asset quality itself remains stable. A lot of the variance in terms of the movement Q-on-Q is really about the timing of the reallocation of overlays. So if you recall, last year, we did reallocated our COVID overlay into new form of risk of inflation, mostly on the retail segment. That has -- in terms of the observation period has come off. So we have reallocated that overlay this quarter into the macro uncertainties risk overlay. So that reallocation amounted to about MYR 500 million this quarter. If you recall, last quarter, we did an initial amount of about MYR 100 million during the first quarter. In terms of the chart itself, if you look at the segments in terms of the write-back, that's what I mentioned where last quarter, we recorded a bigger write-back coming through in Niaga. If you look at the non-retail side, we did record some write-backs improvement in asset quality on some of the lower-rated commercial loans in Malaysia. So there was an upgrade on some of those loans, which resulted in the write-back. On the consumer side, the last quarter was slightly lower because of the model deployment of an enhanced new model on the unsecured product, and that resulted in the write-back last quarter. So the absence of that is a normalization on the retail. So if you look at it from a credit cost perspective, it's fairly stable at 29 basis points, well within our midpoint of our guidance of 25 to 35 basis points. If you look at our gross impaired ratios, it's been fairly stable over a few quarters and has improved on a Q-on-Q basis. And in terms of allowance coverage as well, we've maintained it to be above 100%. On Slide 17, on gross loans, this was also impacted by the FX translation. So if you look at it on a constant currency basis, Novan highlighted, we're growing at 3.6%. On consumer and commercial banking, both on a Q-on-Q and year-on-year basis, the momentum continues to be good, and that's mainly driven by Singapore and Malaysia across consumer and commercial. Wholesale Banking, the negative growth is mainly driven by Malaysia. We are expecting that growth to pick up in the second half of the year as the pipeline is strong. So if you break down the Malaysia growth of 2.6%, our consumer is growing at 4.1%. Commercial is growing at 5.8%, where it brings down the average to 2.6% is on the wholesale side. On the other hand, Indonesia's growth of 6.8% is driven by the wholesale growing slightly higher than that. Singapore is mainly on the SME segment driving that growth. Thailand is a reflection of the tough backdrop on the sector and the contraction in Thailand is driven by negative growth of wholesale banking. On the deposit side here is the story here is mainly on CASA. So if you look at the momentum on CASA on a quarterly basis, we're growing well at 1.4%, similarly on a year-on-year basis. This is really driven by the non-retail side, both on commercial and also wholesale. Most of that growth is really on CASA, on commercial and wholesale. Consumer banking, that negative growth is intentional coming through from Singapore, like I mentioned earlier that we have maintained in terms of the NIM by being very nimble on the campaign rates and also the pricing on the consumer Singapore FDs. So that's driving that Q-on-Q and year-on-year contraction. If you look at the strong momentum on CASA across all our countries from a Q-on-Q basis, we are showing improvements across. Slide 19, we've covered this earlier in terms of our dividends. So in total, we are paying out MYR 2.1 billion dividends, and we are maintaining the payout ratios. On Slide 20, our capital ratios has remained fairly stable and strong. Similarly, in terms of our liquidity, we are having a very good and strong liquidity ratios. Slide 21, moving on to the performance by segment. Here, a bit more detail in terms of the performance, where you can see on Consumer Banking, the contraction is really driven by the higher ECL, and this is really a reflection of the timing of the overlays and what I mentioned earlier in terms of the write-back in the first quarter related to the model deployment on the unsecured, which resulted in about MYR 100 million write-back last quarter on the ECL for consumer. On a year-on-year basis, flattish growth. We did experience some margin compression on the consumer business, which impacted the top line. That, however, was offset by lower ECL on a year-on-year basis, mainly coming through lower ECL in Malaysia and also Indonesia. If you look at the gross loans on a constant currency basis, we grew loan by 4%, like I mentioned earlier as well, Malaysia driving that growth of 4.1%. Within the deposit line, CASA grew by 7.3%, and that's driven mostly by Thailand and Singapore. Commercial Banking, the good growth during the quarter was driven by strong NOI because of the NPL sale coming through in Niaga. On a year-on-year basis, similarly, the operating income growth was driven by NOI. However, we did have a higher ECL due to the timing of the write-backs. Last year, we had quite a significant write-back coming through in Singapore under commercial. On loans, on a constant currency basis, we grew by 7.7% with Malaysia growing at 5.8%. If you look at the deposit number, within that, CASA grew by 6.3% with Indonesia and Singapore driving that number. Wholesale Banking on Slide 23, the contraction in PBT was driven by the fact that we recorded a Niaga write-back last quarter amounting to an MYR 80 million write-back in first quarter. So the absence of that resulted in the PBT going lower Q-on-Q. Year-on-year is mainly driven by the top line where the strong Treasury and Markets operating income growth year-on-year of about 10% is offset by the corporate segment. The negative growth on loans is mainly driven by Malaysia and also Thailand. On the deposit side, on CASA, that's a big driver of that 4.6% growth. CASA on a year-on-year basis grew by 19%, and that's driven by Malaysia, Indonesia and also Thailand. On CDA and group funding from an overall perspective, the good growth on operating income is driven by both group funding on NOI and NII and also mainly on Philippines. Some of the tactical cost savings came through under group funding, resulting in the lower cost Q-on-Q. If you look at Touch 'n Go Digital, that remains -- continues to be profitable that Novan mentioned. And if you look at the indicators on Touch 'n Go, the momentum continues to be positive. CIMB Philippines as well, if you look at the deposit and number of customers, that also continues to be positive. Lastly, on Islamic on Slide 25, some of the positives are going through on the Islamic side. So the ECL volatility on a Q-on-Q basis driving the PBT performance the NIM expansion on a year-on-year basis, impacting positively for Islamic, where operating income growing nicely at 5.3%. Our Islamic first strategy continues. And therefore, if you look at our growth at 7% year-on-year growth continues to be strong. So that's the end of the financials. Thank you, and I pass the presentation back to Novan.

Thank you, Khairul. So how do we see the balance of 2025 based on our ongoing discussions with our customers. And in fact, in times like this, we're staying even closer to our customers. You would have seen corporate earnings in Malaysia and also in other markets also improving in the second quarter versus the first quarter. We -- although still early days, we do expect business confidence to gradually improve with greater clarity around the U.S. tariffs. As a result, we are maintaining our 2025 guidance that we provided earlier, which is at the right-hand side of the slide. With regards to CIMB Group, we remain focused. We are hunkered down and we are all focused on the execution of Forward 30. We are a work in progress. We do want to -- the North Star Forward30 is about creating sustainable returns in the long run. And therefore, that will require us building a very sustainable machine that is always working, and that is a work in progress, but we are all extremely focused towards that. Having said that, we are -- we will always remain nimble to respond to evolving macroeconomic conditions. We've seen all the recent aggressive rate cuts in all the markets, and we remain nimble to adjust our strategies to adjust our funding mix in order to mitigate all the short-term impact. We will continue to invest in technology and digital to enhance our customer experience and support scalable growth. We are maintaining our deposit-led strategy to proactively manage cost of funds to ensure NIM stability. And as you've seen over the last one year, it's responsible growth. We are growing our assets on a constant currency basis. We are growing our loans, but we're making sure we're doing it responsibly. And that has allowed us to maintain a strong asset quality in a market that is like Indonesia, we have the strongest NPL. We maintain good levels of liquidity with an 88% LDR, which provides us the capacity to fund future growth. In terms of capital, we are well capitalized, which gives us the flexibility to optimize shareholder returns at the right time. So with that, I will end here and take any questions that you may have.

Thank you Novan and Khairul. Ladies and gentlemen we'll now begin the question-and-answer session. [Operator Instructions] [Technical Difficulty]

Tushar here. Can you hear me? And should I start with the first question? Hi, Tushar here. Can you hear me? Should I start with the first question?

Tushar, can you hear us?

Yes.

Yes. Sorry, we had some technical issue. Yes. So please proceed. Sorry. Thank you everyone for your patience.

Yes, it was quite clear that FX translation, especially rupiah versus ringgit, almost 9%, 10% move in the last year. It is affecting reported numbers in ringgit terms. Indo is also quite accretive to the group in terms of ROE, NIMs. So is there a risk that this sharp depreciation in the rupiah poses some downside risk to your, let's say, ROE targets for the year? What sort of buffers do we have to offset this impact?

Yes. Thank you, Tushar. You are right. We have observed FX translation against us in this first half, as you would have seen in the numbers. But we have remained nimble. So despite the challenges that we saw with regards to Indonesia and the rupiah, Malaysia and Singapore, for example, performed very, very strongly. And that is the benefit of us having this diversified portfolio across the group, where some markets are down, we have some markets that perform better to basically mitigate those impact. So despite Sing dollar also seeing some depreciation versus the ringgit, but because the Singapore business performance have been very, very strong due to the strong [Technical Difficulty]

No worries. I lost you at the Singapore business, performance was better.

Everyone, sorry again. So sorry about that. We hope it's stable now. Sorry, Tushar, would you like to continue?

Yes. I lost you at the Singapore business. So you were mentioning that Singapore business was better, yes.

Yes. So what we've observed in the first half, Tushar, despite the challenges that we saw in Indonesia, it was mitigated by the strong performance in Malaysia and Singapore. Singapore also saw some currency depreciation, although not as much as the rupiah, but the business performance is good. From our perspective, what is most important is to ensure that the business engines in each country continue to run. So while there will be FX impact up and down throughout the cycle, what's most important is the business engines continue to run. So that's why when we saw on a constant currency basis, net profit is still up 3.2%, we know at least the business engine is still running.

Okay. So basically, just to summarize on the loans growth because you have a constant currency target, but on ROE, so far, the visibility on 11%, 11.5% is still there because of other businesses doing.

Correct. It's still there due to the other markets.

Okay. Understood. And second, just on the wholesale banking piece because you're right on the tariffs and also because of bond markets, the yields have come down. So it looks more attractive there. But also because now the tariffs are finalized, you are hinting that second half might be better. Can we have the drag from wholesale banking in terms of assets growth, which is negative. Can we have that reverse out in the second half of the year?

Yes. So based on our discussions with our clients to date, people are seeing a lot more certainty, which is what people like. So it's, yes, although the tariffs announced will have impact on pricing as well as supply chains, but people just input that into their model. What's most important is the certainty to then move on and make the necessary CapEx commitments as well as investments. That is the one that's driving our business. But just to correct one point to Tushar, the loan growth is negative for wholesale, but not the asset side. Asset is actually growing, but it's the loan growth, which is mainly from Malaysia wholesale that is leading to the negative. Based on what -- based on the pipeline that we have at the moment, we are confident that we are able to reduce or to even reverse that.

Got it. Got it. And finally, just one last question on NOII opportunities. Some of the peers seem to be guiding to some good FVOCI reserves for the second half of the year, especially after the July OPR cut. Do you see an opportunity there also? Have you managed to sit on some unrealized or get some unrealized gains on the book, which can potentially buffer the NOII for the second half? [Technical Difficulty]

Tushar, again sorry.

Tushar, apologies. We lost you at NOII.

Yes. So just some of the peers have been guiding to that, especially after the OPR cut, there was a further increase in the unrealized gains, FVOCI reserves on the books. Have you also seen a similar trend for your own book? Have you managed to get some unrealized gains, which can buffer NOII for the second half?

So the short answer is yes. So similarly, as per the market, we recorded very good gains on the unrealized side due to our FVOCI book. We haven't crystallized much of it during the first half of the year. It does provide us that opportunity going forward. In terms of the timing of that crystallization really depends on the market opportunity, right, whether [Technical Difficulty] Sorry. So just to complete my sentence, right? So it depends on the market opportunity. So we do have gains recorded in the first half of the year, quite significant, and it depends on the market opportunities going forward on whether we want to crystallize that or not.

Sorry, everyone, for all the disruptions. We'll try to work that out in the background. Okay. The next question from Yong Hong are you still there? Sorry about this.

Maybe I'll ask both questions together. First on dividends. I think we have talked about flexibility on capital optimization for some time. But was that thinking applied to the interim dividends? And just wondering your thoughts on declaring MYR 0.1975. [indiscernible] And is that a question of BNM ceiling or management thinking? So I just wanted to understand the thinking behind this. And secondly, on liability management, LDR low, LCR looks high than peers. Anything you can do to improve margin significantly, and especially, I think Singapore came out growth of 7% year-on-year. And one of your peers is talking about alternative funding sources like [indiscernible]

Sorry, Yong. Can you just repeat the second question, Yong?

Second question is on liability management. Your LDR low, LCR also looks higher than peers. Anything we can do to improve margins significantly? And do we see any cost savings on alternative funding sources like the [indiscernible] paper what your peers are talking about? These are two questions that I have.

Okay. Thank you, Yong Hong. So the first point on dividends, our thinking of the 55.5% is to be consistent with what we have been paying out in the past outside the special. So we've gone with that thought process of 55.5% payout. So that is number one, to be consistent. And we will continue to monitor the situation and be nimble. At the end of the day, from our perspective, capital will be used according to number one, we want to fund organic growth. Number two, yes, there could be inorganic, but of course, organic growth is always our priority. And if there is excess capital as a result of us not being to deploy that capital for growth, then we would look to optimizing that and returning it to shareholders. So we're still in the first half of the year. There's still a second half. We have -- and there are growth opportunities that we are seeing, but we basically remain nimble and flexible.

So in terms of our liquidity, in terms of the potential positive mitigation going forward, given the backdrop of the policy rate cut that we got in Malaysia in July and also Sora continues to be under pressure. So there are some potential positives to mitigate that. Number one is that we continue to maintain like what you highlighted, a good liquidity sort of profile. So that gives us that flexibility. We are seeing good pipeline of growth coming through from wholesale banking in the second half of the year for Malaysia. So that provides an opportunity to deploy our good liquidity position. Number two, if you look at Singapore, our LDR is relatively still low. There is some opportunity as well for us to be a bit more tactical in terms of our deposits so that we can deploy a bit more of our liquidity there. But I think very broadly, not just these two countries, including Indonesia as well. I think as we build up our deposit franchise, including our CASA, our big focus is to really optimize the more expensive wholesale deposits, which we have managed to do in the second quarter in Malaysia and also to a lesser extent in Indonesia on the repos. And that's what we're going to continue doing in the second half of the year to help mitigate some of that headwind on Malaysia and Singapore on margins.

The next question comes from Ji Han from CLSA.

I have a few questions. First one would be what -- could you give us a little bit of insight into what is currently being done on the restructuring process of CIMB Thai consumer banking side? And what are the current challenges that are actually keeping CIMB from winding down that particular segment, which much like what you did with the commercial banking side of the business in the past? And second question would be on the current ROE that Singapore is actually doing right now up to first half? And where do you expect it to land going into the end of 2025? The third question would be on the current management overlay levels and what the split is between, let's say, retail and non-retail side of the businesses where you actually reallocate accordingly?

Okay. Thanks, Ji Han. Just to confirm, first one is on Thai restructuring. Second was in ROE in Singapore.

Yes.

Okay. And third is on management overlay split. Okay. Got it. And I'll take the first one first on Thai restructuring. So that is progressing as planned. It's a detailed study on what needs to be done in Thailand as a whole. As I've mentioned previously, given our size, given the situation of the market, we need to be a lot more specialized in certain segments. We've done the changes to senior leadership. So there's a new CEO. New CEO has come up with a new updated management lineup. And we are actually right now executing the restructuring process. We have advisers appointed. Challenges, I mean, we are doing this very carefully, right? We do have quite a lot of capital deployed there. It's 12% of our capital. We want to make sure that anything that we do is done after very detailed and careful and due consideration. So, yes, I don't see any challenges in terms of implementation, but more about us ensuring that we are executing this properly. So that is on the Thai restructuring.

So on Singapore, right, we disclosed for the full year 2024, just to have that baseline, right? We disclosed the '24 ROE for Singapore was about 20%. And that's driven by, of course, the margins being at 1.41%. But also we had a net write-back in 2024. For the first half, annualized ROE for Singapore is at 18%. So still sustained at a relatively high level despite some of that credit costs normalizing somewhat. It hasn't fully normalized, but it has normalized somewhat, which is driving the ROE coming off from the 20% to the first half of 18%, still higher than any parts of the group [indiscernible] on Singapore. In terms of the overlay during the second quarter of about MYR 500 million, the debt reallocation due to the macro uncertainties, about 2/3 of that is into the retail segment. About 1/3 of that is into the non-retail segment. But just to be very clear on our definition of non-retail, the bulk of that non-retail is actually in the SME segment, right? Still program lending sort of what I call that overlay are not related to any large corporates or large commercial names. It's more related to the SME segment.

Sure. Could I just follow up on the overlay. So that MYR 500 million reallocation is out of MYR 1.2 billion total as per the previous quarter? Or is this an additional on top?

It's a reallocation, right? So it's new -- because that -- because we have observation periods on overlay, it's not permanent, right? So it is the end of the overlay. So the real intention is what we have consistently provided to the market is that we want to minimize, the overlay write-backs and maintain our 100% loan loss coverage. And this is one of the emerging risk that we see in terms of the justification of new forms of overlay, and we managed to reallocate MYR 500 million this quarter.

And just to be clear, the total overlays that are on the balance sheet or at least they are right now is MYR 1.2 billion.

We don't specifically disclose that any longer. We used to disclose that under COVID, right? But you have the accounting definition in the financial statement.

Okay. Got it. Sorry, I just wanted to follow up one last thing. In terms of CIMB Thai, is there anything from the regulator -- regulatory point of view that might actually keep CIMB from winding down the consumer banking operations?

No, not at this point in time. There is nothing at this point in time that indicate any constraints from a regulator point of view. But this is a dynamic environment that we will continue to monitor and to engage.

Can we move on to Harsh. Harsh, are you on?

Couple of questions. One is on Indonesia. You have been able to manage it quite well. But getting into next 6 to 12 months, there are two forces. One is it looks like there is some improvement in government spend, SRBI yields also coming down. Are you also seeing that improvement in cost of fund, but also broader, there are degree of slowdown and other policy measures, which are kind of leading to some degree of risk. So everyone is getting into better quality lending. So what kind of competition you are seeing? So net-net, both of these things combined is NIMs going up or down over the next six months? That's one. Second, on asset quality, are there any parts of the portfolio either in Thailand or Indonesia or even Malaysia for that matter, where incrementally, you're getting more worried because of tariffs, because of policy measures and so on and so forth. And is there any -- so I'm just trying to understand the risk around the guidance on credit cost. Is it slightly higher or slightly lower?

Thanks, Harsh. So you're right to point out those trends in Indonesia, where I think a lot of focus now is on rates coming down, especially the SRBI rates, which would then free up a lot more liquidity into the system. So we are also expecting and we're starting to see that also. So that would lead to some improvement in cost of funds as well as the NIM outlook. I think asset quality in Indonesia is where we have done very well because of our more careful growth in the past. If you recall, I think a lot of the peers were growing double digit over the last one year, but we chose to be a lot more careful, and therefore, our NPLs are also a lot better compared to the peers. And normally, asset quality issues come up 18 months after a loan is disbursed during a very difficult market. So I think in the next 6, 12 months is where we might see some of that coming through. And those that would have grown very aggressively maybe potentially more exposed. From our perspective, we are comfortable with our portfolio.

Yes. So just to break that down, right? So if you look at some of the GIL by country, it has been either very stable or slightly improving. I think in the FS, you can see there could have been during the second quarter, some pockets or some segments where you saw some minor, very minor pickup in terms of GIL. But what I wanted to highlight by the third quarter, some of those pickup that you might have calculated in the FS have actually normalized back to the December sort of levels. So I would describe that by country and by segment from a very broader perspective. So far, things have been stable or slightly improving by segment.

Right. Sorry, one follow-up on the -- thanks. On Indonesia comment. With the Patriot Bonds being raised, do you see any of your large depositors kind of raising -- withdrawing money from the bank and kind of putting money elsewhere? Is there a pressure on some of your large depositors to redeploy elsewhere, including Patriot Bonds?

I think it's a good question. Patriot Bonds at 2%. And yes, that would impact certain segments of investors, we reckon. But our view is it's less of an impact to our organization probably versus other larger players.

Our next question is from Benjamin Tan from UBS.

I just have one very quick question. I'm not sure whether I missed it. Did you share your NIM guidance? I just want to check whether there's any changes? And how are you thinking about NIMs going to second half of this year?

So if I may take that, in terms of our NIM, we are looking on a year-on-year basis, right? We ended '24 at 2.21%. So on a year-on-year basis, we are looking at a contraction of between 5 basis points to 8 basis points. And sequentially, right, sequentially, because of the OPR rate cut, because of the timing difference between repricing our asset and liabilities, we will get some negative coming through in the next quarter for Malaysia. Similarly, in Singapore as well because of the SORA movement. So third quarter sequentially for Malaysia and Singapore, it is likely to contract. But I think as the deposit starts catching up, we'll get that positive NIM coming through in the latter part of the quarters. And similarly, like what we were discussing earlier, some of the mitigation actions that we are taking will likely offset some of that negative impact. But net-net, from an overall perspective at the group, we are looking at minus 5% to minus 8% year-on-year.

[Operator Instructions] Okay. I think we have exhausted all the questions at this point in time. Novan, I think I can pass it back to you to see your thank yous.

Thank you very much to all for attending our call today. I would like to apologize for the technical issues that will face a number of time or the technical interruptions. So thank you for staying through the call. Thank you for your questions. Thank you for your time. And for those in Malaysia, I wish you Selamat Hari Merdeka, and have a good long weekend. Thank you very much.

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