CIMB Thai stuck with high cost-to-income ratio for now, CEO says
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CIMB THAI Bank has acknowledged that it might not be able to improve its cost-to-income ratio in the near future as it has put a lot of money into a full range of financial services, resulting in high fixed costs.
Subhak Siwaraksa, president and chief executive officer, said the bank’s cost-to-income ratio stood at 68.6 per cent, compared with the banking-industry average of 40 per cent.
He said that even though CIMB was a small bank, it offered a full range of products – including credit cards, which other small banks did not offer – as it needed to expand its customer base. The bank had to bear higher fixed costs until it had sufficient assets of between Bt400 billion and Bt500 billion, he said.
The figure rose from Bt100 billion to Bt279 billion in the past four years, while its loan growth during that period was 20 per cent on average, he said.
Subhak said CIMB’s cost-to-income ratio this year should be around 60 per cent, adding that it might not be possible to reduce the ratio in the short term because of the time it would take to reach the assets goal.
He said that to help offset the high cost-to-income ratio, the bank should focus on net interest income and non-net interest income margins.
The ratio of NII to non-NII was 78:22, which could push non-NII for wholesale banking.
Although the rate of non-performing unsecured loans is high, at 4 per cent of its total outstanding loans, Subhak said the bank remained focused on approving unsecured loans as well as those for hire-purchase businesses and small enterprises as they were high-yield.
He forecast growth of up to 17 per cent in loans to small and medium-sized enterprises this year.
The bank will reduce bad debts from unsecured loans by focusing more on customers with monthly incomes of Bt20,000 to Bt30,000.
For unsecured loans, he predicted new-loan growth of Bt10 billion this year, an increase of 65 per cent year on year and the bank’s highest-growth product, with outstanding loans of Bt17.2 billion.
He noted that the growth of unsecured loans over the past three years seemed slower than it should have been, with the bank having Bt10.5 billion in unsecured loans at the end of last year.
The bank has formed a collection team and even though it is focusing on high-risk products, it forecasts the its NPL (non-performing loan) rate will be less than 3.4 per cent this year, Subhak said.
Last year its NPLs went from 2.5 per cent to 3.3 per cent, driven by used-car and unsecured loans, he said.
Its used-car loans are handled by the bank’s subsidiary Centre Auto Lease Co.
CIMB this year is targeting total loan growth of 15 per cent and deposit growth 20 per cent while maintaining a net interest margin of more than 3.4 per cent.
Its NII and non-NII are forecast to grow 18-22 cent and 25-30 per cent respectively this year.
