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CIMB sees bad loan provisions peaking in Indonesia, Thailand

[KUALA LUMPUR] CIMB Group Holdings Bhd, Malaysia's second-largest lender by assets, said an improvement in its non- performing loans in Indonesia and Thailand made it "optimistic" about next year's prospects.

The bank has seen the peak in provisions against problem loans at its Indonesian unit while the loan book in Thailand is already improving, CIMB chief executive officer Tengku Zafrul Abdul Aziz said.

"For Indonesia we have taken the provisions much earlier than our competitors and we have seen the peak, so from there we will see improvement," Tengku Zafrul said in an interview Tuesday with Bloomberg Television.

"For Thailand, we have already seen recovery. So we are quite optimistic that next year will be a better year for us."

CIMB doesn't foresee the need for more job cuts among regional banks, said Tengku Zafrul, who became the bank's CEO in February.

"For the next two years I don't think there will be any more cuts, in my case, and even in the industry. A lot of people have started to take that move and things have somewhat stabilised."

CIMB embarked on a cost-cutting program earlier this year after abandoning a three-way merger with domestic competitors RHB Capital Bhd and Malaysia Building Society Bhd. in January, as economic conditions turned unfavorable.

It has since closed its Australia office and axed about 50 mostly equities-related positions from Hong Kong, Taiwan and South Korea to help trim investment banking costs by 30 per cent this year.

CIMB has also reduced its staff in Malaysia and Indonesia by 11 per cent after a combined 3,599 employees in the two countries took up voluntary separation offers, the company said in July.

Smaller rivals RHB Capital and Hong Leong Bank Bhd. have either eliminated jobs or announced plans to do so amid a slowdown in loan growth and a cooling economy.

Malaysia's capital markets are expected to remain "soft" during the next six months, resulting in fewer equity and debt deals for the bank to manage, Tengku Zafrul said. The deals pipeline may recover in the second half of next year, he added.

Tengku Zafrul said CIMB will stick to its plan of completing an expansion into the Southeast Asian nations where it has no operations by 2018. The remaining countries are the Philippines, Vietnam and Myanmar, he said.

CIMB's profit this year has been hurt by bad-debt provisions in Indonesia, where it derived about a third of net interest income in 2014. The firm is due to report third-quarter earnings before the end of the month.

Despite the forecast of a peak in provisions, Tengku Zafrul said he remained cautious about Indonesia. "Given what's happening in the economy of Indonesia, it won't get back to the normal levels that we are used to before, because recovery will be slower, and also the economy slowing down will have an impact on the general market," he said.