CIMB Bank to sell RM8.4b of bad loans to‘bad bank’

KUALA LUMPUR: CIMB Group Holdings Bhd has received the Minister of Finance’s approval for CIMB Bank Bhd to dispose of RM8.4 billion bad loans to Southeast Asia Special Asset Management Bhd (SEASAM), a special-purpose company that can be deemed its “bad bank”.

The bad loans that will be sold to the “bad bank” has a net book value of RM928 million.

In a statement to Bursa Malaysia yesterday, it said CIMB Bank would dispose of a portfolio of mostly legacy non-performing loans (NPLs) comprising about 45,000 accounts with a gross loan amount of RM8.4 billion to SEASAM, a wholly owned unit of CIMB Group.

Following the exercise, CIMB Bank’s gross NPL ratio would drop to 2.8% and its net NPL to 1.3%. Loan loss coverage would improve to 116.1% from 91.8% as at Sept 30, 2009. However, there would be no change to CIMB Group’s consolidated ratios.

CIMB Group chief executive Datuk Seri Nazir Razak said SEASAM would lay the foundation for the creation of a regional entity within CIMB Group that would operate, manage and extract value from CIMB Group’s NPLs in Malaysia and across the region.

“The creation of a separate identifiable entity for NPLs would further reflect a clean break from the past and allow stakeholders to easily differentiate between the results of CIMB Group’s business transformation and its legacy NPL recovery efforts,” he said.

CIMB Bank is expected to deconsolidate those bad assets in its financial year ending Dec 31, 2009.

Earlier this year, the banking group had said the group was planning to set up a regional “bad bank” to manage some RM10 billion and RM11 billion in NPLs that had been written down to about RM1 billion.

The bad loans would be mainly from its Malaysian operations, but the “bad bank” would also manage NPLs from its Thai unit, it had said.

Meanwhile, CIMB Group said Datuk Zainal Abidin Putih had been appointed as chairman of SEASAM’s board, while Ahmad Shazli Kamarulzaman had been identified as a candidate for the CEO position.

CIMB Group said the duo would bring in their vast experience in management of NPLs and distressed assets gained from Pengurusan Danaharta Nasional Bhd, the national asset management company set up by the Ministry of Finance in the wake of the 1997 Asian financial crisis.