KUALA LUMPUR: CIMB Group Holdings Bhd is well-positioned for growth, driven by an increase in loan growth, competitive deposit pricing, and effective cost management, according to RHB Investment Bank Bhd (RHB Research).
The research firm also noted that the banking group's overseas operations, particularly in Indonesia and Thailand, are expected to benefit from the upcoming interest rate cut cycle.
"RHB Economics & Market Strategy recently revised its view on the federal funds rate (FFR) and now expects the US Federal Reserve (Fed) to cut the FFR by 100 basis points (bps) in 2024 and a further 100 bps in 2025.
"Closer to home, it expects Bank Indonesia (BI) to cut the policy rate by 75 bps and 100 bps in 2024 and 2025, respectively, while Bank of Thailand (BOT) is expected to lower its policy rate by 25 bps this year and 75 bps next year.
"Bank Negara Malaysia (BNM) is expected to stay pat. We think the regional rate cuts could be positive for CIMB's overseas operations," it said in a note.
Meanwhile, RHB Research said Indonesian banks, including CIMB Niaga, are expected to benefit from upcoming rate cuts, which will ease funding costs.
This is likely to improve volume growth, especially after the net interest margin (NIM) compression in early 2024 caused by higher liquidity costs.
The firm also noted that Thailand's policy rate cuts and increased government budget disbursements could ease asset quality pressures amid an uneven economic recovery.
It said improved loan demand and reduced asset quality concerns are expected, with Thailand contributing four per cent to CIMB's group profit before tax in the first half of 2024 (1H24).
Furthermore, the firm noted that Singapore's NIM may be pressured by cuts to the US FFR, but it believes compensatory factors like increased loan volumes and enhanced wealth management opportunities could mitigate this impact.
Overall, RHB Research has upgraded its rating for CIMB to 'Buy' from 'Neutral' previously, with a target price of RM8.90.
The firm said a higher return on equity (ROE) target under the next mid-term plan is a key rerating catalyst.
RHB Research also anticipates a near-term boost in loan growth in Malaysia, projecting an annualised rate of about two per cent for 1H24, which is below the management's five per cent target.
"CIMB has approved approximately RM500 million of data centre-related loans with another RM5 billion in the pipeline, which should bode well for growth ahead," it noted.