UOB Kay Hian
Date of Report: 2 September 2025
CIMB Group 2Q25 Results: Cost Discipline, Trading Gains, and Improving Asset Quality Drive Recovery and Upside

Overview: CIMB Group’s Road to Recovery in 2Q25

CIMB Group, Malaysia’s largest investment bank and the second-largest consumer bank, continues its journey toward recovery with a solid performance in the second quarter of 2025. Despite macroeconomic headwinds, the group’s disciplined cost management, resilient capital position, and strong non-interest income have contributed to positive momentum. The stock remains a sector laggard, presenting an attractive value proposition for investors seeking exposure to Southeast Asia’s vibrant banking sector.

Key Investment Highlights

• Recommendation: Maintain BUY
• Target Price: RM8.25 (1.14x 2026F P/B, ROE: 11.2%)
• Current Price: RM7.43
• Upside Potential: 11.0%
• Current Valuation: 1.0x 2026F P/B, below sector average of 1.1x
• Dividend Yield: 5.3%
• Major Shareholders: Khazanah Nasional Berhad (21.5%), EPF (16.5%), Amanah Saham Nasional (9.9%)

2Q25 Financial Performance at a Glance

Performance Analysis: Steady Recovery Amid Macro Headwinds

Net Profit and Operating Performance

• 2Q25 net profit was RM1.89 billion, down 3% YoY and 4% QoQ, bringing 1H25 net earnings to RM3.86 billion (down 0.5% YoY). On a constant currency basis, 1H25 earnings actually grew 3.3% YoY, reflecting resilience despite net interest margin (NIM) pressures.
• Pre-provision operating profit (PPOP) increased 5% QoQ, driven by cost discipline and robust non-interest income (NOII) momentum.
• Operating expenses fell 1% QoQ and were flattish YoY, with the cost-to-income ratio improving to 45.5% from 46.9% in 1Q25.

Net Interest Margin (NIM) and Non-Interest Income Strength

• Net interest income was stable YoY and QoQ, with NIM holding firm at 2.15% (down just 1bp QoQ) despite interest rate cuts in Indonesia and Thailand, and lower SORA in Singapore.
• Effective management of funding costs and robust CASA growth (+10% YoY) helped offset regional NIM compression.
• NOII rose 5.3% QoQ, underpinned by strong trading gains (+10.3%), though partially offset by a 5% decline in fee income. For 1H25, NOII was down 4% YoY due to lower NPL sales at CIMB Niaga.
• FVOCI reserve unrealised gains saw a positive swing of RM674m in 1H25, moving from a RM515m loss in Jan 25 to a gain of RM157m.

Loans, Deposits, and Geographic Performance

• Total group loans grew 1% YoY (+3.6% on a constant currency basis), with headline growth dampened by regional currency weakness.
• By segment, growth was led by commercial loans (+4.2%) and consumer loans (+2.7%), while corporate loans declined 3.9%.
• Regionally (on a constant currency basis): Singapore (+9.0%) and Indonesia (+6.8%) outperformed, Malaysia was steady at +2.6%, and Thailand contracted by 2.6%.
• Management maintains 5%-7% loan growth guidance for FY25.
• Deposit growth stood at 2.7% YoY, with a strong focus on lower-cost funding sources.

Asset Quality and Risk Management

• Gross impaired loans (GIL) ratio improved to 2.1% (from 2.2% in 1Q25).
• Net credit cost rose 6bps QoQ to 32bps, attributed to fewer lumpy writebacks in Indonesia and the Malaysian consumer book.
• Loan loss coverage remained robust at 101%, with RM600 million of management overlays set aside to buffer for macro risks from US tariffs (RM400m for consumer, RM200m for SME).
• Management continues to prioritize asset quality over aggressive loan growth, positioning the group to weather asset quality stresses related to global trade risks.

Capital Position and Dividend Outlook

• Common Equity Tier 1 (CET1) ratio stood at a healthy 14.7% as of end-2Q25.
• No new special dividends planned for 2025 and beyond, but the group remains committed to a recurring dividend payout of 55%, translating into a 5.3% yield.

Forward Guidance and Strategic Outlook

• Management’s 2025 guidance: ROE of 11.0%-11.5%, loan growth of 5%-7%, net credit cost of 25-35bp, and NIM compression of -5 to -8bp.
• For 2H25, management is cautiously optimistic, expecting improved business confidence as US tariff clarity emerges and liquidity conditions in Indonesia ease further following recent rate cuts. The 25bps OPR cut in Malaysia is expected to have a diminishing impact as deposits reprice lower by 4Q25.

Full-Year and Forward Financial Projections

Valuation and Investment Thesis

• The stock trades at an appealing 1.0x 2026F P/B, below the sector average of 1.1x, despite delivering above-sector ROE of 11% (vs sector 10%).
• Share price is down 8% YTD compared to a 4% decline in the KLFIN Index, providing an attractive entry point.
• Key catalysts ahead include improved liquidity in Indonesia, further recovery in NIMs, and potential upside from trading gains.

Environmental, Social, and Governance (ESG) Commitments

• Environmental: Commitment to provide RM30 billion in sustainable financing by 2040; transition to zero new coal financing and zero carbon emission by 2050.
• Social: 30% female directors on the Board; enhanced financial inclusion for B40 communities through affordable housing and welfare assistance.
• Governance: 60% of the Board comprised of Independent Non-Executive Directors.

Conclusion: CIMB Group Positioned for a Stronger 2H25 and Beyond

CIMB Group’s 2Q25 results underline its resilience and strategic focus on cost management, stable asset quality, and capital strength. With improving regional liquidity, easing funding costs in Indonesia, and prudent risk management, the group is well-positioned to benefit from an anticipated uptick in business confidence and market activity in the second half of 2025. The current valuation offers investors compelling upside, supported by a robust dividend yield and forward-looking ESG initiatives.

Appendix: Key Operating Ratios and Metrics

With disciplined execution, attractive valuations, and a strong capital base, CIMB Group stands out as a compelling banking stock for investors looking for both growth and income in Southeast Asia’s dynamic financial landscape.