CIMB Group Holdings Bhd (CIMB) has been upgraded from Neutral to BUY, with a target price of RM8.90, reflecting a potential return of 10.1%. Currently priced at RM8.08, the bank boasts a market capitalisation of RM20,168 million (US$4,410 million) and an ESG score of 3.3 out of 4. Analysts from RHB Investment Bank Bhd (RHB Research) highlight that CIMB's overseas operations, particularly in Indonesia and Thailand, are poised to benefit from an anticipated cycle of rate cuts in the region.

RHB Research notes that the recent revision of the Federal Funds Rate (FFR) by RHB Economics & Market Strategy indicates a likely reduction of 100 basis points (bps) by the US Federal Reserve in 2024, followed by another cut in 2025. In addition, Bank Indonesia is expected to lower its policy rate by 75bps and 100bps in 2024 and 2025, respectively, while the Bank of Thailand is projected to cut its policy rate by 25bps this year and 75bps next year. In contrast, Bank Negara Malaysia is anticipated to maintain its current rates. These regional rate cuts are expected to have a positive impact on CIMB's overseas operations, particularly its Indonesian subsidiary, CIMB Niaga (BNGA), which is also rated Buy with a target price of IDR2,300.

The report further indicates that Indonesian banks are set to benefit significantly from the impending rate cuts. In the first half of 2024, many banks, including CIMB Niaga, experienced a compression in net interest margin (NIM) due to increased liquidity costs. However, with the easing of funding costs expected from the forthcoming rate cuts, CIMB Niaga is likely to see improvements in volume growth, given the group's funding-led strategy. Indonesia contributed 24% to CIMB's group profit before tax in the first half of 2024.

In Thailand, the report suggests that the combination of policy rate cuts and increased government budget disbursements may alleviate asset quality pressures. The uneven economic recovery in Thailand has posed challenges, but improved loan demand and easing asset quality concerns are anticipated with the introduction of rate cuts. Thailand accounted for 4% of CIMB's group profit before tax in the first half of 2024.

The report also touches on Singapore's NIM, which could face pressure from US FFR cuts. Nevertheless, RHB analysts believe there are compensatory factors in place that could cushion this impact, such as potential increases in loan volumes and improvements in wealth management opportunities. In the first half of 2024, Singapore contributed 15% to the group profit before tax, aided by strong performance in the wholesale segment.

Domestically, loan growth is expected to see a boost in the near term, with the annualised growth rate in Malaysia for the first half of 2024 at approximately 2%, falling short of management's 5% target. Notably, CIMB has approved RM500 million in data centre-related loans, with an additional RM5 billion in the pipeline, suggesting a robust outlook for growth in the second half of 2024.