Published February 24, 2009

Bumi-Commerce Q4 net profit slips 34%

Bank hit by weak capital markets, M&A charges

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(KUALA LUMPUR) Malaysia's second-largest lender, Bumiputra-Commerce Hol-dings Bhd (CIMB), posted a more than one-third drop in fourth-quarter net profit, dragged down by merger-related charges and as income from capital markets dipped.

CEO Nazir Razak flagged slowing economic growth in 2009, rising credit charges and continued weakness on the bond market, a main income source to the bank.

'We are bracing ourselves for a tough macro operating environment in 2009 as the global financial crisis morphs into a global economic crisis,' Mr Nazir told a news conference.

State-controlled CIMB, which owns significant bank assets in Indonesia and Thailand, said October-December net profit fell 34 per cent to RM318.6 million (S$132.9 million) from RM485.75 million a year earlier.

Full-year net profit dropped to RM1.95 billion from RM2.79 billion in 2007, and below a Reuters Estimates consensus forecast for RM2.15 billion.

Merger-related charges for the full year were for a RM112 million loss as the bank made major acquisitions in Thailand and Indonesia. In 2007, it said it recorded a total net gain of RM674 million on merger activities.

The bank forecast 8 per cent loan growth in 2009, down from 13.7 per cent last year. Mr Nazir said the projection had factored in gross domestic product growth of about one per cent.

He said the bank has no further fund-raising plans and was ready to redeem US$300 million bonds due this year.

'We have sensibly strengthened our capital and asset quality ratios and reduced market risk position to lessen earnings volatility,' he said. 'At this stage, we think our capital ratios are strong.' The bank raised RM2 billion in tier-1 capital and RM1.5 billion tier-2 sub-debt last year, boosting its tier-1 capital ratio to 10.8 per cent as at end-2008.

CIMB owns 78 per cent of PT CIMB Niaga, Indonesia's fifth largest bank by assets. It had earlier said it would raise the unit's bad debt cover of 69 per cent at end-September to match the industry average of 90 per cent.

Singapore's DBS Group, South-east Asia's biggest bank, recently announced a bigger-than-expected 40 per cent drop in quarterly profit, hit by an increase in bad debt provisions.

Analysts have warned that bank earnings could contract this year as lenders face higher bad debt charges and a squeeze in net interest margin and fee-based income.

Malaysia's economy is widely expected to contract in the first quarter of 2009, and consumers have started to feel the strain of rising unemployment and the economic downturn.

Ahead of the results, the lender's shares fell 0.8 per cent, while the broader market lost 0.2 per cent. CIMB shares have risen 10 per cent so far in 2009, beating the broader index's 1.2 per cent gain. -- Reuters