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Issuer Credit Research

Issuer Flash: CIMB Group Holdings Berhad

Issuer: Cimb | Document: Issuer Flash | Date: 2026-09-04 | Event: Q2 H1 2026 Results

Report date: 2026-09-04 Event date: 2026-08-28 Event title: Q2 and H1 2026 Results

1. Flash Conclusion

CIMB Group Holdings Berhad's 2Q and H1 2026 results preserve the broad investment-grade credit view in the May issuer summary, but make the balance between earnings resilience and capital flexibility tighter. Quarterly net profit rose 1.2% quarter on quarter to RM1.94bn, helped by higher non-interest income and lower operating expenses. Gross impaired loans (GIL) improved to an all-time low of 1.6%, while group loan-to-deposit ratio (LDR) declined to 85.4%. Those outcomes support the view of a diversified ASEAN banking franchise with deposit-led funding and still-strong headline asset quality.

The offset is that the principal earnings headwind has not turned. H1 net interest margin (NIM) fell 10bp year on year to 2.06%, and H1 net interest income fell 3.1% to RM7.42bn. H1 net profit of RM3.86bn was consequently broadly flat year on year, despite 3.1% growth in non-interest income and a 1.2% reduction in operating expenses. Loan-loss charge rose to 34bp in H1 and 38bp in 2Q, while group CET1 declined to 14.0% after the declared interim dividend. The credit conclusion is therefore stable rather than stronger: income diversification, cost management and asset-quality buffers remain effective, but they are increasingly important to offset margin pressure, higher credit costs and shareholder distributions.

For holding-company creditors, the relevant caution remains structural subordination. The group-level results and operating-bank liquidity metrics are constructive, but they do not establish the cash, dividend upstream or loss-absorption available at CIMB Group Holdings Berhad. Investors in senior, Tier 2 and AT1 instruments should continue to distinguish issuer, rank and contractual loss-absorption features.

2. Earnings Resilience Is Being Tested by NIM Pressure

The official 2Q26 presentation reports quarterly net profit attributable to owners of RM1.939bn, 1.2% above 1Q26 and 2.6% above 2Q25. PBT rose 2.2% sequentially to RM2.607bn and quarterly ROE increased 20bp to 11.2%. The sequential improvement was broad enough to be meaningful: net interest income increased 1.3% quarter on quarter to RM3.732bn, non-interest income rose 6.0% to RM1.830bn and operating expenses fell 1.6%, reducing the cost-to-income ratio by 200bp to 45.2%.

That is a more resilient result than headline NIM alone would suggest, but it is not evidence that the margin problem has been resolved. Quarterly NIM fell another 4bp to 2.04%, and H1 NIM was 2.06%, versus 2.16% in 1H25. H1 net interest income declined to RM7.415bn from RM7.652bn, while H1 non-interest income increased to RM3.557bn from RM3.449bn. The earnings mix therefore confirms that CIMB can use franchise fees, client sales, wealth, Treasury and Markets activity and costs to cushion weaker spread income. It would be too strong, however, to assume that every component of non-interest income will recur at the same level through a weaker market cycle.

H1 PBT fell 2.2% year on year to RM5.158bn, and net profit attributable to owners was essentially unchanged at RM3.855bn. The stability in reported profit is a credit comfort, but the underlying test in the next releases is whether asset growth, loan repricing and lower-cost deposits can stabilise NIM without requiring continuing exceptional cost or market-income support. Management maintained FY26 guidance for ROE of 11.0-11.5%, constant-currency asset growth of 5-7% and a cost-to-income ratio below 47%.

3. Asset Quality and Funding Remain Supportive, but Credit Costs Need Watching

The asset-quality read-through remains positive at the headline level. GIL improved from 1.7% at March 2026 and 2.1% at June 2025 to 1.6% at June 2026. Allowance coverage excluding regulatory reserves was 99.5%, while coverage including regulatory reserves was 133.2%. These ratios, together with the modestly lower LDR, continue to support the view that CIMB is not currently facing a broad deterioration in reported loan quality or an obvious funding strain.

The higher loan-loss charge is the important counterpoint. It rose from 29bp in 1H25 to 34bp in 1H26 and from 31bp in 1Q26 to 38bp in 2Q26. H1 loan impairment was RM798m, 14.7% above the prior-year period. The company retained FY26 loan-loss-charge guidance of 25-35bp, so the H1 outcome is at the upper end of that range and the presentation's reported 38bp quarterly ratio is above it. This alone does not demonstrate a future asset-quality deterioration: the materials reviewed do not provide sufficient country-, product-, Stage 2- or arrears-level provision detail to determine whether the increase is normalisation, portfolio mix or a more durable trend. It does make the source and persistence of credit costs more important than the GIL ratio alone.

Funding remains a relative credit strength. Group deposits reached RM536.5bn at 30 June, up 2.1% quarter on quarter and 2.5% on a constant-currency basis; gross loans were RM458.1bn, up 0.7% quarter on quarter and 1.1% on the same basis. LDR fell to 85.4% from 86.6% in March. The CASA ratio declined to 42.6% from 43.3%, so deposit growth does not yet prove that funding costs will cease to pressure NIM. The presentation also reported average liquidity coverage ratios of 149% for CIMB Bank, 162% for CIMB Islamic, 187% for CIMB Niaga and 166% for CIMB Thai. They support operating-bank liquidity comfort but must not be read as a measure of the holding company's standalone liquidity.

4. Capital Allocation Has Less Cushion than the Headline Franchise Strength Implies

Group CET1 was 14.0% at June 2026, down from 14.3% in March and 14.7% a year earlier. The presentation retains management guidance of CET1 of at least 14.0%; it does not describe that figure as a regulatory minimum. CIMB also declared a first interim dividend of 19.65 sen per share, or RM2.1bn, equivalent to a 55.4% H1 payout ratio, and reiterated commitment to its multi-year capital-return plan. The distribution is consistent with management's confidence in its current capital position, but it leaves less distance between reported CET1 and its stated target than at the previous quarter.

This is not a conclusion that CIMB has inadequate capital. Rather, the event increases the value of testing capital against the combination of margin pressure, loan-loss charge, RWA growth and distributions. A stable GIL ratio does not remove that test because retained earnings can weaken before reported impaired loans rise. The company's FY26 guidance, including a CET1 ratio of at least 14.0% and loan-loss charge of 25-35bp, provides a transparent framework for following that interaction.

Management also described the divestment of CIMB Thailand's auto business as disciplined capital allocation. The announced direction is constructive if it reduces a lower-return or riskier use of capital. The materials reviewed, however, do not establish the timing or amount of any repatriated capital, the post-sale earnings effect or the dividend contribution to the holding company. Those questions remain relevant for holding-company creditors and should not be resolved by inference from consolidated capital ratios.

5. What To Watch Next

The next results should first test whether NIM and net interest income stabilise, and whether CASA and deposit growth can help reduce funding-cost pressure. Second, investors should seek a clearer decomposition of loan-loss charge by geography and product, together with Stage 2, arrears and new-impaired-loan indicators, rather than relying only on GIL and coverage. Third, CET1 should be assessed after dividends, capital returns and RWA growth, not simply against the stated target at one reporting date.

Finally, the issuer-summary monitoring distinction remains important: group CET1, deposits and subsidiary LCRs are not substitutes for evidence about holding-company cash, received dividends, debt maturities or the contractual terms of individual senior, Tier 2 and AT1 securities. The 2Q/H1 release confirms the relevance of the existing SSC additional-discussion monitoring questions on NIM, credit costs, distributions and holding-company structure, but it does not verify the discussion's detailed downside scenarios. Those broader questions remain for the next issuer summary.

6. Sources