Malaysian banking group CIMB Group Holdings Bhd yesterday cut its earnings forecast for Taiwan’s state-run Mega Financial Holding Co (兆豐金控) this year by 2 percent, after the conglomerate reported falling net interest margin (NIM) in the first quarter.
Mega International Commercial Bank’s (兆豐國際商銀) NIM, a critical gauge of bank-focused financial institutions, stood at 1.11 percent during the January-to-March period, down 7 basis points from three months earlier and 17 basis points from a year earlier, CIMB said.
Mega Commercial Bank is the main subsidiary and source of income of Mega Financial, accounting for about 80 percent of its parent company.
“The falling NIM shows room for improvement” for Mega Financial and will limit its profit growth this year to 3 percent to 8 percent, despite an expected increase of 5 percent to 7 percent in loan books, CIMB’s Taipei-based analyst Nora Hou (侯乃鳳) said in a report.
A rapid pickup in US dollar-based interbank assets, a falling loan-to-deposit ratio and sliding demand deposit exposure also contributed to the NIM retreat, Hou said.
The CIMB report said that US dollar-denominated interbank assets, which carry lower yields, squeezed greenback-based NIM by 19 basis points.
Hou cut her earnings per share (EPS) estimate for Mega Financial this year from the NT$2.52 she had projected earlier to NT$2.46.
The EPS forecast translates into net income of NT$31.09 billion (US$1 billion) for this year, from the earlier estimate of NT$33.71 billion, the report said.
Despite the downward revision, Mega Financial is still expected to be Taiwan’s most profitable state-run financial services provider.
In the first five months of this year, the company reported a net profit of NT$13.74 billion, or NT$1.11 per share.
Hou said Mega Financial’s lending to small and medium-sized enterprises as well as its foreign currency operations may drive loan growth, but may not do much to boost the group’s profitability.
She expects NIM to drop four basis points this year and gain one basis point next year, when Taiwan’s central bank is likely to raise interest rates.
Rising macro uncertainties and volatilities associated with US interest rate movements may constrain the upside for wealth management business, although Mega Commercial Bank may register better performance at its corporate banking and foreign exchange segments, Hou said.
She assigned a “hold” rating to Mega Financial’s shares.
Mega Financial’s shares ended down 1.1 percent to NT$27 in Taipei trading yesterday, better than the TAIEX’s 2.18 percent fall, data from the Taiwan Stock Exchange showed.
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