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

Good afternoon, ladies and gentlemen. Welcome to CIMB Group's financial results briefing for the third quarter of 2025. Our host is CIMB Group 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 from the CIMB Group Investor Relations e-mail. Otherwise, you may find the documents in the IR section of our website at cimb.com. Before we begin, please be informed that this briefing is recorded and I would like to encourage everyone to please include your name and company on the Teams app to allow us to identify you. [Operator Instructions] At this juncture, I would like to hand over the briefing to Novan and Khairul. Novan, over to you, please.

Thank you, Steven. Good afternoon to everyone. Thank you for joining us today. It's been a very robust and strong third quarter 2025 for us. Net profit grew about 10% quarter-on-quarter, which basically brings our 9 months 2025 net profit to about MYR 5.94 billion and an ROE of 11.3%. I attribute this resilient performance despite all the macro headwinds that we've seen this year as well as the persistent rate cuts that we've also observed across all our core markets of Malaysia, Indonesia, Singapore and Thailand. I attribute the resilience really down to our diversified portfolio strategy, our strength in the respective business segments that we serve as well as our disciplined F30 execution that has allowed us to be -- to deliver this resilient performance. Net interest income, despite the persistent rate cuts that we see across all our core markets is relatively flat year-on-year. And I attribute this to our cash strategy, which is one of the focuses in F30, which delivered a deposit and CASA growth of 8.3% and 13.9% year-on-year, respectively. This essentially allowed us to cushion our NIM compression year-on-year to about 8 basis points despite the persistent rate cuts. These deposits were then used to fund our asset growth on a constant currency basis. Assets for us grew 5% year-on-year, while loans grew 3.3% year-on-year. Looking at noninterest income, this is really the strength for us this year as well as this quarter. Year-on-year, noninterest income grew 3.4%, whereas quarter-on-quarter, we saw a 20.3% growth. And this was contributed by all components of NOII. And I attribute this success due to our cross-sell strategy, which is another important component of F30. On the operating expenses side, we remain extremely disciplined. OpEx grew 1.6% year-on-year, bringing our cost-to-income ratio to 46.5%. This is really driven by our capability strategy in F30, but I want to stress that the cost discipline is not at the expense of technology investments. We still continue to invest in technology. We believe investments in technology to always enhance our operational resiliency, and that was about 7.5% TCIR for the period. Our asset quality remained to be healthy. Loan loss charge is at 33 basis points, so within the guidance that we have been providing to the investment community. GIL improved to 1.9% as well as Allowance Coverage is still above 100% for us at 102.8%. Our capital is in a strong position. It's at 14.8% CET1 ratio. And in line with our capital strategy, which is another important component for Forward30. On top of our annual dividends, we are also pleased to announce our intention to execute a capital return of up to MYR 2 billion to shareholders over the next 2 years. Now as part of this intention, we are pleased to declare a special cash dividend of up to MYR 760 million, which is to be disbursed to shareholders on Christmas Eve. A few of the initiatives that we have recently announced during the third quarter. Starting from the left of the chart, we launched OCTO Biz, which is the new -- which is our new non-retail banking platform for our customers. So very similar to the OCTO that our consumer customers use, our non-retail customers would use OCTO Biz. Together with OCTO Biz, we also launched a new FlexiCash product, and this is really aimed at the SME and micro SME segments. It's a cash flow-based loan where historically, in the past, you would see most financial institutions requiring collateral in order to give financing to SMEs. We've now come up with a product where with at least 6 months worth of cash flow data to be kept with the bank, we are then able to provide SMEs financing based on their cash flow. We also announced a collaboration together with PingPong, which is one of the global leading players in cross-border payments for SMEs. And this essentially is to allow our customers to be able to collect like a local whenever they deal with cross-border trade. With regards to our own bank funding, we tapped the vendor bond market recently, raising about RMB 3 billion, which is the largest single tranche issuance by a Malaysian institution in the China Interbank Bond Market in the recent years. Right after the ASEAN Summit, the Malaysian government also announced the setup of the establishment of the ASEAN Business Entity. CIMB is 1 of 6 Malaysian companies selected to pioneer this ABE status. And we're currently working with the Securities Commission with regards to rolling this out. I think one of the early benefits that we're going to see from the ABE is freer movement of labor, which will basically help us with regards to planning our regional employee movements better. For the society, CIMB via Touch n' Go is managing the digital infrastructure for the Malaysian government in the recent RON95 petrol subsidy program called BUDI95. We are 1 of 4 banks partnering the AIIB to mobilize funds for sustainable projects across ASEAN in the next few years. Total commitment is about equivalent, MYR 25 billion. And lastly, we also announced a MYR 50 million education commitment towards our CIMB ASEAN scholarship program as well as other capacity building initiatives to run from 2026 until 2030. Just a recap of our Forward30 strategic plan anchored by our purpose to advance customers and society. It's really driven by what I always like to call the 4 Cs. And I alluded to this earlier in my presentation. The first C is capital, the second C is cash, third C is cross-sell and the fourth C is capabilities. Starting with capital. I mentioned earlier about our intention to deliver up to MYR 2 billion capital return in the next couple of years, and we've kicked that off with a special dividend to be paid on Christmas Eve of about up to MYR 760 million. On our cash strategy, as a result of a lot more focus on deposits, we managed to reduce cost of funds by 21 basis points year-on-year and 10 basis points quarter-on-quarter despite all the challenges that we're seeing. So despite the rate cuts that we have faced as an institution in all our core markets, as you can see on the table in the middle, our cash strategy has managed to cushion the NIM compression that we're facing. Our third strategy on cross-sell and cross-sell to me, I'd like to look at certain leading indicators such as number of clients. You can see a number of customers on the wealth side has increased for us, which led to a corresponding increase in our wealth AUM of about 30% year-on-year. But one number that I'm really focused on is also the treasury client sales. If you can recall, 1.5 years ago, we started disclosing the treasury client sales numbers. And this line of business has been improving every quarter. It's now 4.3% up year-on-year and 13.6% up quarter-on-quarter. With regards to fees and commission, we are the #1 ringgit bond market player this year. Whenever we look at raising financing for our customers on the non-retail side, it's not just the mobilizing of loans, but we also see in terms of the amount of financing we raised for them, including in the bond market, and we remain to be a #1 player with more than 20% market share. But fee and commission income is up 3% year-on-year for us and 5.6% up quarter-on-quarter. With regards to our capabilities strategy, the fourth C, as I mentioned earlier, our cost-to-income ratio has improved to 46.5% versus 46.7% last year, but not at the expense of our investments in technology. With that, I'll now hand it over to Khairul to go through details of our performance. Khairul, over to you.

Thank you, Novan, and good afternoon, everyone. So key highlights on some of the numbers is a bit more color. If you look at the NIM compression that we saw, the reduction on a Q-on-Q basis. Like Novan mentioned, it was across the board in terms of the rate cut, but the main driver here is Malaysia being lower by 5 basis points Q-on-Q. The strong growth of NOII resulted in that expansion on our NOII proportion of the total income. The cost-to-income ratio is well contained, but the increase on a Q-on-Q basis is really driven by the accruals of bonus that we booked during the third quarter. Another point here on this slide I would like to highlight the credit charge of 33 basis points is well within our guidance of 25 to 35 basis points. Moving on to other highlights on Slide 10. The strong growth that you see on this chart here in terms of NOII on a Q-on-Q basis is really across all the NOII lines, and that has driven the operating income growth in all the countries on a Q-on-Q basis. If you look at our diversified portfolio, the strong growth or the growth in Malaysia and Singapore has offset the negative growth that we recorded in terms of operating income in Indonesia and Thailand. And the main driver of that negative growth in Indonesia is really about the FX translation into the reporting currency of ringgit. And therefore, you can see on a constant currency basis, our total income growth on a year-on-year basis grew by 4%, and that translated to a PBT growth of 4.4% on a constant currency basis. The chart on the right, Novan has gone through that in terms of our NIM evolution. So briefly highlights in terms of the segmental PBT on Slide 11. Consumer Banking on a year-on-year basis did experience some margin compression, but there were also some prior year write-backs coming through under the ECL. So an absence of that has resulted in PBT coming off. On a Q-on-Q basis, the underlying PPOP is strong, driven by NOII coming from a write-back on -- driven by NOII coming from an NPL sale in Consumer Malaysia and also fees being stronger on a Q-on-Q basis. However, this is offset by the absence of some overlay write-back that we recorded during the second quarter when we reallocated some of that overlay from consumer into commercial banking. So you can see if you look at consumer banking, we did additional macro overlays this year, and that impacted the year-on-year performance, which is down by 10% PBT. But in addition to this, we also had a lower NII for Commercial Banking because of the margin compression. The Q-on-Q performance is also impacted due to the absence of an NPL sale gain that was recorded during the second quarter. Wholesale Banking, very strong performance, both on a Q-on-Q and year-on-year performance. During the third quarter, and that drove the year-on-year, Q-on-Q performance, we did record a corporate recovery coming through in Malaysia. In addition to that, during the third quarter, we had a very strong top line growth of 11.4%. Lastly, on CDA and Group Funding, this is really a function of the additional accruals that we made in terms of bonuses given the strong top line performance, and this is booked centrally under Group Funding. On the highlights by country on Slide 12. So Malaysia, robust performance, both Q-on-Q and year-on-year. NIM holding up well on a year-on-year basis where it is stable. The quarter was also driven by strong NOII, I mentioned in terms of the consumer NPL sale, which was recorded in Malaysia. We also had that third quarter corporate recovery coming through. So all of these points driving the year-on-year and Q-on-Q performance. Singapore, on the year-on-year performance, we did have a higher lumpy corporate-related write-backs or recovery in 2024. So -- and the absence of that driving the PBT lower. Both year-on-year and Q-on-Q, NOII was strong on both Treasury and Markets and also fees, offsetting the pressure in terms of NOII where we suffered some -- we suffered margin compression in Singapore. Indonesia, overall, the backdrop was relatively challenging in terms of the first half of the year, coupled with the FX translation into ringgit that has impacted the PBT on a year-on-year basis coming down by 3.9%. Q-on-Q, good performance on Treasury and Markets. However, that is offset partially by the higher ECL due to some write-back that we recorded during the second quarter. Thailand, the year-on-year and Q-on-Q performance is really driven by our lower ECL. In addition to that, the year-on-year performance has also improved from strong Treasury and Markets performance. Going to the details on Slide 13 on the breakdown of our P&L on NII. Overall, like what Novan mentioned, third quarter, we were impacted by the movements in rates, mainly the impact coming through from Malaysia. We can see Malaysia's NIM coming off by 5 basis points. However, I'd like to highlight that in September, that number has somewhat recovered as we reprice our deposits. Our expectation the benefit of that will continue going into the fourth quarter, which will likely offset some of the typical seasonal pressure that we saw -- that we typically see during the fourth quarter. So overall, net-net, fourth quarter outlook for Malaysia should be relatively stable. Offsetting this pressure, you can see Indonesia on a reported basis, margins went up, and this is mainly, one, driven by a one-off recognition. But if you exclude the one-off recognition on an underlying basis, Indonesia still improved by 5 basis points, and that's a reflection of the improved liquidity that we saw coming through towards the second half of the third quarter. And we managed to really optimize our more expensive repos during the latter part of third quarter, which drove the margins higher. Thailand, up on a reported basis. If you recall during my last -- our last briefing, we did say that there was this one-off effective interest rate negative hit during the second quarter. So a normalization of that offset the underlying pressure that we saw driven by the rate movements. Singapore is impacted by some one-offs in the second quarter and third quarter. So that was negative overall. But if you -- even if you exclude that impact, Singapore on an underlying basis was down by 18 basis points versus the reported number that you see here, which is larger. The 18 basis points is really driven by the fact that SORA movements during the third quarter was significant. As you know, SORA has now stabilized somewhat. It's still coming off, but stabilized somewhat. So overall, during the fourth quarter, we do expect for the group overall is likely to remain stable on a sequential Q-on-Q basis. Year-on-year, Malaysia, I mentioned the proactive liability management and also our CASA strategy has managed our NIM to be stable year-on-year. In Indonesia, it's really driven by the tightness of liquidity in the first half of the year. Thailand driven -- the contraction is driven by the rate cuts and also driven by our adjustment on the effective interest rate that we did during the second quarter. Singapore is really a function of the SORA movements. On NOII, on Slide 14, this is where the strong performance is driving our overall operating income. You can see on the top left-hand chart, the fees and others is really driven by our fees coming through very well on Wholesale Banking in Malaysia. Our consumer investments in Malaysia has also picked up during the third quarter. Additionally, Singapore bancassurance has continued to be strong during the third quarter. In addition to all of that, we had an additional NPL sale in Malaysia amounted to about MYR 100 million. Niaga NPL sale during the third quarter was sustained about MYR 70 million, so almost similar to the level that we recorded in second quarter. And you can see in terms of the trading and FX, that's the bigger driver of our NOII and our client franchise income continues to be strong, growing close to about 14% on a Q-on-Q basis. Year-on-year, if you look at the fees and others, that is really driven by Wholesale Banking Singapore and Indonesia and also consumer bancassurance in Singapore. Our NPL sale as well this year is slightly higher. This year, we recorded MYR 220 million. Last year was MYR 170 million. In terms of trading and FX, the sales of the client franchise component really outpacing the growth versus the trading side. Next slide on operating expenses on Slide 15. So on an underlying basis, this is very well stable and contained. You can see the real pickup in terms of cost is really driven by the personnel lines, and this is really the bonus accruals that we booked driven by the good top line that we recorded. On establishment and technology, just to recap, if you recall, we did some tactical cost savings that we initiated from the first quarter and some of those are really realizing in the second quarter and third quarter. And these are real just small tactical levers that we were pulling. And establishment costs, there was about the normalization of that, and that was about MYR 20 million. Similarly on technology, some of the tactical cost savings coming through this quarter, and hence, the cost being lower Q-on-Q. Technology also I want to highlight those tactical cost savings is also driving the relatively low growth in terms of technology costs growing by 2.1%. From an overall number perspective, I just want to highlight as well, you do -- it is quite noticeable in terms of the seasonal increase in costs that we do sometimes in third quarter or fourth quarter, depending on when the accruals start catching up. If you recall last year, there was a big catch-up as well in the third quarter in 2024. So overall, in terms of our cost-to-income ratio, we're recording at 46.5%. It is higher compared to last quarter, where it's 46.9% versus 45.5%, but I want to highlight that versus the full year of 2024, we recorded at 46.7%, so a small positive JAWS. Next slide on asset quality on Slide 16. This remains strong and resilient. From a total provision perspective, that is lower, both on a Q-on-Q basis and also on a year-on-year basis. The main driver, firstly, in terms of the quarterly number is the corporate recovery that we recorded in Malaysia driving that big box number. Within non-retail, the increase is due to two things. One is that in second quarter, there were some upgrades in terms of ratings, which resulted in some write-backs coming through. We also did some prudent provisioning on overlays in Singapore amounting to about MYR 80 million related to macro overlays. Within retail, last quarter, we did some model deployment in Indonesia on credit cards, and that resulted in some write-backs. So the absence of that has resulted in that increase. So somewhat similar on a year-on-year basis, the increase in terms of ECL for retail is driven by the timing of reallocation of overlay where we had a larger write-back in consumer last year. The rest of the numbers are fairly stable, where the bigger recovery is really coming through because of the third quarter Malaysia corporate recovery. So overall, we are at 33 basis points with relatively good -- with an improved allowance coverage at 103% and gross impaired ratio improving in Malaysia and Indonesia. On deposits, it's really the CASA growth that's driving that overall deposit growth. You can see on a Q-on-Q basis, it remains strong, similarly on a year-on-year basis and that's driven by wholesale banking. The CASA component in wholesale banking on a year-on-year basis grew by 26%. So you can see in terms of that improvement coming across all the countries and similarly, in the second -- in this third quarter, we've managed to expand our CASA ratio by 10 basis points. Sorry, I skipped the loan side, yes, sorry, on Slide 17, if you look at loans. On gross loans, we are impacted by FX. So like what Novan mentioned, it is on a constant currency basis, we grew by 3.3% on Slide 17. Wholesale banking is one of the area where it is lower year-on-year, especially in the first half, we were very disciplined in terms of pricing and funding, which resulted in some of that weakness. But during the quarter, the contraction is really driven by the loan NPL sale in Indonesia. That's number one. Number two is also driven by the corporate recovery coming through Indonesia impacting the gross loan number during the quarter. Other than that, commercial and consumer continues its momentum. So if you look at Malaysia, the main driver is consumer and commercial growing at about 4% to 5% level. In Indonesia, the main driver is corporate and also SME. Singapore, consumer is growing very well on the wealth financing at 14%, similarly on the SME segment. Thailand, it is a very tough market and the negative growth is driven by corporate. If you look at our loan-to-deposit ratio, we continue to be flush and that has shown an improvement given our deposit-led strategy. So Slide 18, I've gone through that. I'll skip -- I'll then move on to the capital slide. So with the special dividends there, we are at 14.8% and we have announced a MYR 760 million of special dividend with -- as part of that MYR 2 billion intention of the capital return. Going down by segments on Slide 20. If you look at the PBT growth, this is where I mentioned a strong PPOP growth is really driven by NOII, both on the fees and also other income because of the consumer NPL sale, where the offset comes through is in terms of ECL because of the timing of the reallocation of overlays that we did in the second quarter that resulted in a write-back during the second quarter. On a year-on-year basis, we are facing some challenges on NIM. And similarly, in terms of provision, there's no challenge there, but given the higher overlay write-back that we recorded in 2024. On a constant currency basis, you can see gross loans are growing at 4.1% with Malaysia growing at 3.8%, so very close to where the market is. If you look at deposit CASA driving that growth with CASA growing at 10.4%, driven by Thailand and also Singapore. On Commercial Banking on Slide 21, the contraction is because of the operating income due to the absence of the NPL sale gain that we recorded under commercial during the second quarter. If you look at the provisions, it is really about the timing of some of the accounts being upgraded where we resulted in the write-back in the second quarter. On a year-on-year basis, the operating income is impacted by NIMs. On the provision side, that's impacted by the macro overlays that we booked for Commercial Banking during the second quarter. On Slide 22, on Wholesale Banking, so we recorded a very strong growth in terms of PBT, very robust Treasury and Markets NOII and also driven by the Malaysia corporate recovery coming through. Similarly, during the 9 months, the corporate recovery driving that lower -- that higher write-back during the year that has driven the PBT growth of 15.7%. The moderate or the slight contraction in terms of gross loan is driven by negative growth in Malaysia and also Thailand with CASA growth driving the overall deposit growth and the CASA growth coming through in Malaysia, Indonesia and also Thailand. Digital assets and group funding. In terms of the numbers, both Q-on-Q and year-on-year, the main driver is really the accruals that we took on OpEx that we book under group funding, the accruals on bonus that we did during the third quarter this year. If you look at the lead indicators, the momentum still continues to be positive. In Philippines, in terms of number of customers that 10.1 million, that has grown from the second quarter this year of 9.8 million and of course, significantly compared to last year. If you look at Touch n' Go Digital annual transacting users, there are some noises last year. But if you look at it on a Q-on-Q basis, this 15.7 million grew from 15.2 million in the second quarter this year. Lastly, on Islamic Banking on Slide 24. So this in terms of the year-on-year growth that is growing very strongly, driven by both NFI and also NOFI. And the provision has remained fairly flat with the asset accumulation as well growing, continuing to be above the conventional side. So that's the overall financials here. So thank you, and I pass the presentation back to Novan.

Thank you, Khairul. So in summary, we are maintaining our 2025 guidance across all the key metrics that you see on the right-hand side of the page. In summary, our diversified portfolio and our disciplined F30 execution in my view, actually has allowed us to deliver this resilient performance despite all the macro headwinds, challenges as well as the persistent rate cuts that we're seeing in all our key markets. In the short term, we do expect FX to remain a headwind for our business. As you can see earlier, about 40%, 40-plus percent of our business come from outside Malaysia. There's a strengthening of ringgit versus other currencies. We've seen that impact our business this year to the tune of about, say, 3%, 4%. We do expect FX to remain a headwind in the short term. Nonetheless, we do think that interest rate cuts are likely to be tapering off across the various markets. And as a result, we are expecting NIMs to stabilize. Now while we recognize it will take some time for all the dust to settle with regards to global tariffs and the new world order, we remain committed to invest in our business for the long term. So we're not here playing just a short-term 6-month, 1-year type of game, but we're really committed to continue to invest in our business for the long term despite the short-term volatility that we're seeing. With that, I will stop here and take any questions that you may have.

[Operator Instructions] The first question is from Yong Hong from Citi.

I'll just ask one question on capital and 2 other questions. So on the capital return plan, just wanting to get more color on how have your conversations with regulators across the various jurisdictions has been [ BNM, OJK ] or what are the key topics or key considerations that you're having with them when bringing up this topic of declaring capital return across 3 years? And any specific mentions of minimum capital ratio or any other prominent metrics? And maybe some color on this will be quite helpful.

Okay. So I mean, this is something that we proactively analyze and manage every time. So it's not -- it's basically a triangulation of many, many factors. One is our own business plan, right? So we have our own business plan where we know where we're going to grow, depending on the risk that we're seeing in the market, depending on the trends that we're seeing in the market. So we have our own business plan. We then discuss this business plan with the various regulators in each of our key markets. And of course, very important in those discussions are always ensuring that we grow responsibly, we grow sustainably while ensuring that the bank has strong capital. We then also layer in what we're seeing out there in the market, right? What are other peers doing, what are other banks doing with regards to capital levels? So triangulating all those factors is how we then come up with our plan or our intention to basically optimize capital by -- through this capital return plan. First step of that, of course, then is a special dividend that we have announced and going to be paid out by Christmas Eve.

Yes, with the minimum capital ratio, right, with the intention of this capital return program. So you can see for our third quarter with that special dividend, Q-on-Q, our capital ratio actually ticked up slightly, including the special dividend by 10 basis points. With the intention of the capital return program, we still expect our capital ratios to be stable, right? And we have always guided the market for 2025, that's going to be above 14%. So we still are maintaining that stable capital ratio. So that has not moved.

Okay. Got it. And just a small follow-up on this. Any opportunities to raise the payout ratio across geographies. What are the key blocks? And any opportunity to do that so that your overall ordinary dividend payout can be higher because that will be something that could be more sticky and visible to investors.

I mean how we see this is basically a complete package. We have our annual payout ratio, which is per our dividend policy. We have our additional capital return, which over the last 3 years, including this year, has been via a special dividend. We did also mention that moving forward, we want to consider other options in terms of returns depending on market conditions and regulatory approval. And the third thing is capital share price appreciation. So we see CIMB as a total return package for investors. And we want to make sure everything that we deliver is something that's more sustainable moving forward. So I think at the moment, we are happy with how we have structured the various return programs that we have for our investors.

Yes. And maybe moving on to your trading income. Just looking at the PBT by countries, trading income this quarter seems to be driven by Singapore and Thailand, but no comments were made to Malaysia for this quarter. Does that mean that the unrealized profit from Malaysia are intact this quarter? And how should we be thinking about trading income in the next few quarters?

Yes. So I think trading and FX, right, the main driver overall, we look at it from a firstly, mainly, right, it's very critical from a regional perspective. So the risk and opportunities and the way that we manage treasury markets is really on a regional perspective and the pockets of opportunity can be quite volatile between country to country. And that's not to say that going forward, that opportunity might be lower within Malaysia. So it's really dependent on market conditions and the trading opportunity in terms of timing. But that's really on the trading component, which I rightly pointed out in terms of Q-on-Q, it's really driven by Indonesia and also Singapore and Thailand. It was weaker in Malaysia. But you look at it from a client franchise perspective, which is a second component, which is very critical in terms of our strategy that has been well supported.

And maybe final question on asset liability management. I think the overall LDR coming to mid 80%. How should we be thinking about optimizing this or the thinking should be to deploy this excess liquidity into your other interest-earning assets? Because if you look at margins this quarter, it came down. But if you look at NII perspective, it has been quite stable. So just wanted to get some thoughts on asset liability management.

Yes. So we have some opportunity, right, coming through in mainly Thailand and also Singapore in terms of leveraging up of liquidity to manage any headwinds on margins or the seasonal pressure that we may get. So that's mainly in Singapore and also Thailand. In Malaysia, broadly, the environment in terms of liquidity is stable, but I always described, right? It's not looser, but it's stable. It's not tightening, but it's at a level of already [ tight ] level. Although we do have good liquidity buildup coming through in the third quarter, but the seasonal impact of rates in Malaysia is a bit more pronounced typically compared to the other countries. And in Malaysia, that seasonal pressure typically comes from both retail and also non-retail. So even though that we are positioned in terms of liquidity going into the fourth quarter for Malaysia, that headwind will continue for Malaysia.

Our next question comes from [indiscernible] Singapore. We will come back a bit later. Just take the next question from Jin Han from CLSA.

A couple of questions from me. First question would be on the capital return program. Wondering what the considerations were in actually picking that MYR 2 billion number? And how does that fit into the midterm milestones under Forward30, where you're looking at 12% to 13% ROE and your dividend payout is pretty much 50-plus percent. So wondering how that fits into this? And how should we think about it going forward?

I mean it's all part of the overall F30 plan. Given the F30 plan is all about the 4 Cs, right? So we have capital, cash, cross-sell, capabilities. So the capital return is part of the first C. I mean how we've done this analysis is basically based on our business plan and projections over the coming years, layer in with the risk that we're seeing, the trends that we're seeing and as a result and also the levels of capital that we would like to have. So when we triangulate all that together, that basically came to that MYR 2 billion number. I mean all this is part of our F30 strategy to basically hit the midterm targets that we have articulated earlier.

Understood. Just on the second question, a little bit more specific to some corporate restructuring that was done during the quarter. So based on the financial statements, there were a couple of movements. I think one was [ MYR 455 million ], one was MYR 548 million. Just it would be great if you could give a little bit of a granular breakdown in terms of where these have been flowed to on the balance sheet. And where exactly are they sitting in right now?

Okay. So I think there's a lot of -- well, not a lot, right? We don't really comment on specific because it's really a specific corporate recovery, right? Some of the numbers are driven by that corporate recovery. Some of the numbers are also there are other components or other factors and not just this one corporate recovery. That's number one. So we don't comment. We don't comment on specific clients, right, how it's impacting our FS. But it does impact from an overall perspective, ECL on loans, ECL on others under the bond number and broadly also under the balance sheet on the loan number. So there is an impact in terms of those notes, right? I won't go down into the detail of line by line. The second part in terms of the accounting treatment, I think it's suffice for me to say that we've gotten in terms of clearance from our external auditors in terms of how we treat and which lines are impacted to give comfort to the market that we are doing this according to the accounting standards.

Okay. Just to follow up on that. The provisions that were previously on, let's say, the amortized cost of the [ trial and loans ], they're still on the books.

Sorry, can you repeat that question? Maybe just clarify that question?

Sure. So because there was movement in ECL allowances. So I just wanted to confirm whether these ECL allowances are still on the books?

We still have provisions, right? The recovery that is coming through that hits the P&L is coming on to some under ECL loans, some under ECL bonds. So that is where the recovery is coming through in the P&L.

I'll take the next question from Tushar from Nomura.

My first question is on OpEx trend. So you mentioned that it's accruals of some of the bonuses because of strong top line. Just trying to understand how much of it is front-loaded accruals given that it's just the third quarter, usually, banks have bigger provisions or the final quarter is when you would close the books and you would allocate more. How should we think about final quarter then? Have you front-loaded in third quarter? Or it's just that the bonus accruals is so big that you just decided to split it into third quarter and fourth quarter?

It depends on how we perform in the fourth quarter. So it is the short answer.

Okay. Okay. So if performance is equally strong, then I believe then this kind of run rate can sustain. Is that how we should read about it?

Yes. Yes. I mean how we think about it is, I mean, bonus is basically paid out of performance and it has to be linked to performance, Tushar. So yes, depending on how the fourth quarter performance would be, then that would determine the accruals. But I mean, at the end of the day, we saw an opportunity to basically book more accruals in the third quarter, and that is what we have done.

Okay. Okay. Understood. Second is on net credit cost. Start of the year, I think the guidance was 30% to 40%. I think during the earlier part of the year, you revised it to 25% to 35%. It looks like 9 months is ending up at the upper end of the range. How should we think about this? Is there incrementally more stress that you are seeing? Because on the other side, I look at the gross impaired loans ratio, it's coming down. So is it that there is also an element of being more prudent here? Or is there incrementally more stress you're seeing? That's why it's ending up at the upper end of the range.

Yes. So the short answer is that there is an element of prudency on the loan number, right? At the start of the year, there's very little visibility in terms of the recovery that we recorded in the third quarter. That's number one. There's also very little visibility on how that recovery in terms of the structure of that. As you can see here, in terms of our total provisions, that is actually lower Q-on-Q and also lower year-on-year. And we have maintained our ROE guidance, and we have also maintained our credit cost guidance of 25% to 35%. To your point, now it has moved slightly to the upper end of that guidance, and that's really a function of -- I'm repeating myself, but a function of the fact that we are a bit more prudent because we did take a bit more overlays this quarter, but secondly is the structure of the corporate recovery.

Okay. Okay. And then on NIM, right, you mentioned fourth quarter likely to be stable, but there's also the element of one-off in Singapore. So that should normalize higher. Malaysia, will the NIM also normalize or higher because of the deposits repricing coming through. So shouldn't NIM actually start to -- we should start to see some recovery in fourth quarter itself?

There's also some one-off benefit coming in Indonesia in the third quarter. So the headline number that you saw for Indonesia includes a positive in the third quarter. Underlying, the NIM expansion in Indonesia was 5 basis points versus what was reported as plus 18 basis points. So it offsets -- all of it is more or less offsetting each other, Tushar. So what Novan mentioned, right, as what Novan mentioned, we are expecting Q-on-Q as a group to be stable.

Our next question comes from Harsh Modi of JP.

Thanks for the special dividend and the commitment of MYR 2 billion, quite positive. My question is slightly different. It's on Indonesia. We had large banks starting to pay 4% for dollar deposits in Indonesia, I guess, earlier in the month. How has that impacted funding situation in the country? And how are you managing the stress, if any, getting into the next 6 months because generally, by March, April, you end up getting dividend repatriation a bit of a tightness in domestic liquidity. So over the next, let's say, 6-odd months, how do we think about cost of funds and NIM in Indonesia, Niaga?

We're still -- we haven't seen this translate into our people on the ground because we continue to cut our rates and the volumes are coming through quite well. So we do expect at least in the next 6 months that the cost of funding will continue to improve and help sustain a level of relatively stable NIMs on an underlying basis. So liquidity continues to be good. So the positive environment that we saw towards the latter part of third quarter has continued to be the case.

Yes. And if I can refer also to Page 13, Harsh, I mean, on a quarter-on-quarter basis, Indonesia is actually seeing an improvement in NIM for us. So at least what we're seeing on the ground, I mean, I think also aided by all the recent liquidity injection done by the Indonesian government has actually been positive for the sector. But yes, so that is what we're seeing on the ground.

We're going back to [indiscernible]. Can we move on to Andrew first. Andrew from Macquarie.

Can you help me reconcile the thinking behind the lower interims that were declared 3 months ago versus the announcement of this capital return program. Can you help reconcile the rationales between these supposedly opposite actions? So I'll start off with that question first.

Yes. So I just wanted to clarify, right? For our first interim, we continue to pay 55% of our first half or year-end. So from a full year basis or whether you look at it from a first half basis, we always continuously pay 55% of that period PAT. And upon the second interim dividend, we look at it from an overall full year perspective, it will add up to 55% payout.

But it was slightly lower, yes, on an absolute EPS basis, [ 19.7 sen versus 20 sen ], if I'm not mistaken.

I think on a year-on-year basis, if you look at first half of '25 versus first half of 2024, the PATMI was impacted by FX. So it was lower, if I recall correctly, by 1% or something like that, right? So therefore, 55% or 1% lower, it will be lower. But we always guided the market in terms of 55% payout of our PATMI.

Fair enough. Has there been any change in terms of your thinking towards dividends and capital returns during the past 3 months, especially given the loan growth environment, which has been perhaps lower than expected?

No, right? So like what Novan mentioned earlier, is really that triangulation that we view, and it's not a reflection of the loan growth. So it's really what Novan described earlier in terms of our thinking of this intention on the capital return program.

Yes. But Andrew, I just want to clarify. I mean, we don't set our dividend on a number of sens per share. That's not how we do our recurring dividends, yes. So our policy is always based on the payout ratio. So the payout ratio is multiplied on the earnings that we make. Special dividends is something that we provide from time to time depending on the circumstances. And that circumstances is us triangulation from the rates, from the trends, the outlook, our business plan and certain capital levels that we want to have. So that's how we then assess special dividends that we pay. So it's really, how do you say, you can't think of our recurring dividend as a fix sen per number of shares. That's not how we do it.

We just move on to [ Samuel ].

Just maybe a quick question from my side. Maybe you could provide a bit more updates on the digital banks on Vietnam and some of the other offerings in the countries which you have a bit of a smaller presence of.

Yes. Okay. So in terms of Vietnam and Philippines, right, so if you look at our Philippines business in terms of momentum, right, in terms of the leading indicators, that continues to be positive, right. And we continue to double down in terms of the indicators, right? We are managing the business in terms of the risk profile. So growth has tapered off slightly in Philippines as we are managing the risk profile that we have been growing quite significantly over the last 24 months or so. But if you look at from a digital proposition perspective, that has continued. Where we have tightened or monitored more closely in Philippines is really from a risk management perspective. In Vietnam, we are continuing in terms of our digital strategy of really trying to expand and scale up, especially in terms of customer acquisitions. That has progressed fairly moderately as we still -- in terms of the backdrop and partnerships, there are some challenges to that, but we are making some growth in that area despite those challenges.

Yes. So our approach in those 2 markets are a bit different than our other markets. Philippines, Vietnam is entirely digital. And our approach is twofold. One is via a B2B2C model where we sign up with a number of partners such as e-commerce players who then have GR customers who take on financing on GR platforms. But we also have customers that then move on into our own platform directly. And that one is a direct B2C model. So the way we operate in these 2 countries are entirely digital, slightly different than all the other bigger markets that we've done, although we started also now applying some of the B2B2C models in some parts of our consumer business based on the learnings that we've received in Philippines and Vietnam.

Realistically, are these 2 initiatives ROE accretive in the near term? Or should we not expect much from this side?

I mean it's not material. It's actually part of our group's exploration business model to go and learn what works in the digital space. We then take a lot of that learnings to apply into digitizing our entire larger banking group. So I wouldn't think of -- for your purpose in the short term, Philippines and Vietnam something to be -- to have a meaningful impact to the group.

The next question comes from Aakash at UBS.

Yes. Sorry, I just want to add one more point for [ Samuel ]. Another smaller business that we have, which actually now has turned positive since last year's Touch n' Go Digital. This is basically the e-wallet in Malaysia, where we have now actually total registered users of about 30 million customers versus 8 million customers in the bank in Malaysia. So Touch n' Go Digital has turned profitable. We have the benefit of scale. We have the benefit that is embedded in people's lives. Everyone uses Touch n' Go Digital every day. So Touch n' Go Digital, which is a small business to us today, although in terms of numbers, small to the group, that one could be something quite interesting for us moving forward.

Do we have any clarity on what sort of plans you are going to do this, micro insurance or anything on the like?

Well, I mean, it's today a wallet, which we are now adding on various services. If you fill your petrol in Malaysia and you use the subsidy, it's being managed also by the Touch n' Go system. I think what we're building in Touch n' Go Digital at the moment is like what you see in a GCash in the Philippines, for example. So we'll be adding more. We'll be adding on a lot more services into Touch n' Go Digital.

Yes, let's move on to Aakash, UBS.

I just have a few questions all related to the capital announcement that you did. The first one is, I think if we look at the 14% CET1 target that you have, the amount of excess capital that you have as of the end of '25 or if you go forward '26 is somewhere in the range of MYR 3 billion to MYR 4 billion. So I just want to understand like how do you come up with this MYR 2 billion number? Why is it not MYR 2.5 billion? Why is it not MYR 3 billion or why it not MYR 1.5 billion? What is your plan with the rest of the capital -- excess capital that you have? That's the first question. And then I have a couple more, which maybe I can ask later.

Yes. So Aakash, I mean, no perfect science to this, but it's really a triangulation of many, many things. One is our own business plan, which is based on the risk and the trends that we're seeing out there in the market and also the level of capital that we feel will keep us in a strong position. Our growth also, we model it through various scenarios, but always want to make sure that we grow responsibly. So there are many, many factors here, Aakash. I know if you do a straightforward mathematics, you arrive at a larger excess capital number, but it's a lot more judgment here that we've applied. We feel that this is a fair number over the next couple of years.

I see. So is it then fair to say that the rest of the excess capital that you're carrying, you've not earmarked it for something, but it's something that you're being prudent and you're just trying to create some buffer, which is why you're keeping with you at the moment?

Correct. Yes, absolutely, yes.

Got it. The second one is just in terms of how you plan to return this capital to shareholders? Is there any preference in your mind between a special dividend or a buyback or any other formats? -- or everything is on the table at the moment?

Yes, interesting question. I think it will be subject to valuation, number one, because if valuation is attractive, then I think a buyback would be interesting or even preferred. Of course, that needs to go via shareholders' approval route, which we would go and seek to give us that flexibility. But yes, but if valuation is not conducive for buyback, then I think special dividend has been the mode that we've been applying over the last 3 years. So yes, I think it's going to be driven mainly by valuation.

No, sorry, do you mean that the valuation is not attractive at the moment because you're doing a special dividend?

No, I don't think that way. I mean, at the end of the day, I think based at a certain point in time, depending on the regression line, if, let's say, we feel that it's undervalued versus providing a special dividend, then I think naturally, a buyback would be the more optimal route for us as a company.

I see. So I think what you're saying is a more severe undervaluation is what you will encourage you to go down that route as opposed to a special. Again, any thoughts on the timing? So is it going to be like year-end for the next couple of years? Or can we also expect something interim where you can do a special dividend? I think because this creates a lot of uncertainty for investors, right? If you can guide on some sort of schedule or timing that you're planning to follow, that will be very helpful.

I mean, very hard for us to comment now. Of course, ideally, we want to stagger it evenly, like how you've seen our last -- now 3 special dividends that we've done, right, including the one that we just announced today. But it's all going to depend on market conditions at that point in time, our discussions with regulators. So it's still going to depend on a number of factors, Aakash. I think what's most important is we need to do what is right for the company and all our stakeholders, which include all the shareholders. So I think -- I hope what you've seen is we are a management that is proactive. We see capital as a scarce commodity. And therefore, we will always do what is right for the company and the stakeholders.

Got it. I think one more last question, if I may. So if you were to draw a comparison with some of the other regional banks, they have not only done buybacks, special dividends, but they've also committed to increasing their core dividend over the coming years. So I just wanted to get a sense of your thinking because what you have announced so far is it looks to be all one-off in nature, right? So one-off buybacks, one-off special dividends. Do you also -- are you also thinking about changing the core dividend policy either in form of a step-up or increasing the payout in the next couple of years? Or is that something off the table at the moment?

I mean nothing is off the table. We are always evaluating what is best for the company and the stakeholders, Aakash. I mean we're always proactively thinking about capital. So nothing is off the table. We're always evaluating. But what -- to me, the most important thing that we propose must be something that is sustainable. I think that is the most important thing. So core dividend is something that is reoccurring and paid in our case, twice a year. Whatever that we propose, we need to make sure that it's going to be sustainable rather than one-off periods where it goes up and then it goes down. That's not something that we like to do. So we're always evaluating, but we want to make sure that whatever we propose on the core side must be sustainable.

[Operator Instructions] Novan, it looks like we have no further questions. Over to you for your closing remarks.

Okay. Now I just want to say thank you very much, everyone, for joining us this afternoon. Really appreciate all the questions. If there's any other further questions, please feel free to send it across and I'm happy to clarify any other further matters that you may have separately. Have a good weekend, and thank you very much. Bye-bye.

Thank you, everyone.