KUALA LUMPUR: CIMB Group Holding Bhd's next quarterly results are likely to see the bank's net interest margin (NIM) improvement, steady loans and better non-interest income (NII) growth on a sequential basis.
Hong Leong Investment Bank Bhd (HLIB Research) said the cost of funding has risen in the fourth quarter (Q4) 2022 from the third quarter (Q3) 2022, no thanks to fierce deposits rivalry, the repricing of matured deposits, and seasonal year-end competition in the wholesale money market space.
Despite these drags, the bank-backed research firm said CIMB's NIM is seen to expand quarter-on-quarter (QoQ) given a larger offset from favourable lag in the interest-bearing asset-liability repricing at Singapore along with excess liquidity deployment and positive effective interest rate (EIR) adjustment at Indonesia.
"CIMB reckons its NIM may have potentially peaked in Q4 2022. Separately, we gathered that loan growth is still chugging along nicely.
"As for NII, it is expected to grow QoQ on the back of better wholesale business-related fees, trading and forex performance," it said.
HLIB Research said that despite intense deposit competition, CIMB believes there is no liquidity shortage in the market.
CIMB intends to avoid irrational price rivalry and employ a deposit-led strategy, which would not aggressively pursue loan growth at the expense of higher funding costs.
"That said, CIMB sees two more overnight policy rate (OPR) hikes in 2023.
"As for the percentage of borrowers who have graduated from the rescheduling and restructuring program but are missing payments, it remains largely unchanged at 6 per cent.
"Lastly, on the cost front, it is expected to increase quicker in Q4 2022 on the back of bonus expense adjustment and new projects going live," it said.
Overall, HLIB Research still believes CIMB's risk-reward profile is balanced since the share price has performed strongly over the past year, and there are no new positive catalysts to drive it significantly higher.
"Again, CIMB sounded cautiously optimistic, and core operational trends in Q4 2022 are performing to expectations.
"Hence, our financial year 2022 (FY22) to FY24 forecasts were unchanged.
"We retain 'Hold' with a target price of RM5.85," it added.