CIMB Group's asset quality deteriorates for three consecutive quarters

Gross NPL ratio rose to 4.21% end-Sep 2016 from 3.9% the previous quarter.

According to Maybank Kim Eng, having trended down over the past three quarters, CIMB's asset quality deteriorated yet again, with the bank’s gross impaired loans ratio rising to 5.2% end-Sep 2016 from 4.94% end-Jun 2016. The bank’s gross NPL ratio rose to 4.21% end-Sep 2016 from 3.90% end-Jun 2016. Loan loss coverage declined to 107% from 121% in end-2Q16.

On a segmental basis, there was a QoQ uptick in commercial and SME NPL ratios, which management has attributed to pockets of weakness in construction, property development and manufacturing.

Here's more from Maybank Kim Eng:

The coal book continues to account for 3% of total loans, with an average loan loss coverage of about 60%. Management does not see any writebacks from this sector anytime soon, despite the sharp recovery in coal prices.

The bank has also been actively restructuring its loans, with R&R (rescheduled and restructured) loans now accounting for 7% of its loan portfolio. As a result, its special mention loans ratio declined QoQ to 7.48% end-Sep 2016 from 8.38% end-Jun 2016.

Credit costs remained elevated at 2.62% in 3Q16 versus 2.82% in 2Q16. Loan write-offs totalled 2.8tr in 9M16 versus 4tr in FY15.

Management guides for a gradual reduction in credit costs into FY17. As such, we have raised our FY17 credit cost estimate to 190bps from 170bps before.