CIMB plans to sell majority stake in bad-loans unit

By Chong Pooi KoonPublished: 2009/12/18

CIMB Group Holdings Bhd (1023), the second largest lender in Malaysia, plans to sell a majority stake in a unit set up recently to manage legacy bad loans from its regional operation.

Chief executive officer Datuk Seri Nazir Razak said it is in talks with a few global banks specialising in this area and is exploring options. It may sell the entire unit which houses the old bad loans that the new management inherited from several mergers in the past, if the price is right.

"Logically, we would want to de-consolidate it (from the balance sheet). It would be nice to sell more than 51 per cent," Nazir said at a lunch meeting with journalists in Kuala Lumpur yesterday.

"This is a profitable entity in our projections. If it is proven profitable, in the future we could also buy other's bad debts and manage them," he added.
CIMB Bank yesterday sealed a deal to transfer RM8.4 billion worth of legacy non-performing loans (NPLs), which has a net book value of RM928 million, into the newly-formed Southeast Asia Special Asset Management Bhd.

The bulk of these NPLs originated from the retail consumers and some date back to the late 1990s. The total value of collateral is estimated at RM2.1 billion.

The special purpose company is a wholly-owned unit of the group, with a dedicated effort to bad loans management and recovery. CIMB plans to sell another RM300 million in net book value of NPLs from its Thai operations into the unit next year, Nazir said.

The group also has banking operations in Singapore and Indonesia, but there are not many legacy NPLs from these countries.

CIMB Bank's new management team inherited about RM14 billion in legally claimable bad debts from the former Bumiputra-Commerce Bank and Southern Bank, with a net book value of RM4.8 billion.

At the end of 2006, the gross and net NPL ratios of the newly-formed CIMB Bank were 9.7 per cent and 6.1 per cent respectively.

The net book value of NPLs was subsequently halved to RM2.3 billion in less than three years, bringing down the gross NPL ratio to 5.2 per cent, and net NPL ratio to 2.2 per cent at the end of September this year.

"In fact, NPL management has been one of the best achievements in our overall transformation of CIMB Bank, driven by better credit processes. You can't be a good bank if you can't manage NPLs well," Nazir said.