Recommendation For Cimb Group Finance Essay

good word For Cimb assemblage comport Essay may lingo Bhd is the largest pecuniary run pull up stakesr in Malaysia since its incorpo dimensionn. It has been leading in the af unbendableing industry for several years. May commit was founded by Khoo Teck Puat on 31 May 1960 and commenced ope proportionalityns on 12 September 1960. On 17 February 1962, Maybank was listed on the Bursa Malaysia. The Maybank company today has all over 46,000 employees serving more than 22 million customers globally.Maybank offers a full stray of commercials, somatic and private services including commercial banking, Islamic banking, givement banking, insurance, stock broking, offshore banking, leasing and hire purchase, factoring, prospect services, trustee services, asset management, venture groovy and Inter give the sack banking.Maybank has an international interlockwork that lotion in 20 countries namely Cambodia, Vietnam, Uzbekistan, Ind unmatchablesia, Bahrain, China, Papua New Guine a, Philippines and Pakistan of over 2200 braches. Maybank also enlarged its clearwork to New York and London. Furthermore, Maybank was the first bank from Malaysia that succeeder granted the right to establish a branch office in China.The groups key in operation(p) subsidiaries including Maybank enthronisation cashbox Berhad, Kim Eng Holdings Ltd, Maybank Islamic Berhad, Etiqa, buzzword Internasional In dosia Tbk. In addition, the key overseas unit subsidiaries of Maybank include PT specie box international Tbk (BII), Maybank Philippines Inc., Maybank (PNG) Ltd in Papua New Guinea and Maybank International (L) in Labuan. (Maybank Overview)1Background of CIMB baseThe creations of CIMB sort forth take more than 75 years since year 1924. It has merged few banks in Malaysia and finally forms CIMB company until now. CIMB Bhd was listed on Bursa Malaysia in January 2003. And in year 2006, CIMB sort was launched as a Regional Universal Bank by the merger of Commerce Internatio nal Merchant Bankers, Bumiputra-Commerce Bank and Southern Bank. Nowadays, CIMB collection is the second largest financial services provider in Malaysia. (History of CIMB host)Headquartered in Kuala Lumpur, CIMB convocation retail ne devilrk of over 1100 branches are covering 18 countries in ASEAN with over 43000 employees. CIMB separates main merchandises are Malaysia, Singapore, Thailand and Indonesia by across the following areas which are sweeping Banking, Consumer Banking, Treasury Markets, classify Strategy Strategic Investments, and comprising Investment Banking and Corporate Banking. (Profile of CIMB collection)CIMB concourse offers a full station of financial products and services, covering corporate and posement banking, consumer banking, treasury, insurance and assets management. CIMB theme subscribe to operates under several corporate entities including CIMB Bank, CIMB Investment Bank, CIMB Niaga, CIMB Islamic, CIMB Securities International and CIMB Thai. (Profile of CIMB chemical group)2 dimension of Maybank and CIMB GroupMay BankCIMB GroupReturn on Equity Capital (ROE)61.78%15.17%Return on Assets (ROA)1.12%1.36%Net Interest bound1.74%2.22%Net Non elicit Margin1.00%1.32%Net Operating Margin1.49%3.55%EPS61.4sen54.2senEarning Spread2.17%3.12%Return on equity outstanding (ROE) is the total of net in postdate emergenceedas a percentageof pieceholders equity.Return on equity capitalmeasures a corporations bring in baronby revealing how lotsprofit a company pass onswith the money shareholders have invested.The ROE of CIMB group is 15.17% in 2011 and the ROE of May Bank is 61.78% in 2011. In this number shown that the CIMB Group have a great ROE cornerstonevas to May Bank. This shows that CIMB Group has more shareholders invested and it induce more profit than May Bank. As a result, shareholder able to receive more indemnity from their money invested in CIMB Group. As the net profit enlarges, dividend pay to the shareholder lead also increases since corporation had make a great profit for the year. CIMB Group had shown a good financial position of company based on the high return on common stock equity (ROE). They had spent wisely on their investment during the year. It is worth to invest as the high stock worth hold by the company. It had success to maximize shareholder wealth.3Return on asset (ROA) is an indicator of how profitable a company is relative to its total assets.ROA gives an ideaas to how in force(p)management isat using its assets to generate earnings. In year 2011, ROA of CIMB Group and May Bank is 1.36% and 1.12% respectively. That indicating CIMB Group earning about RM 0.014 for to severally one ringgit in assets and May Bang earning about RM 0.011 for each ringgit in assets. Comparing the numbers, CIMB Group have a bit higher of ROA compare to May Bank. This destine the CIMB Group stimulates higher return generated in relative to the total capital provided than May Bank. Thus, CIMB Group is doing better in investment to generate profits than May Bank.Net liaison margin is a performance metric that examines howsuccessful a corporations investmentdecisions are compared to its debt situations. The net matter to margin of CIMB Group is 2.22% and interest margin for May bank is 1.7%. Both of them have generated positive value of net interest margin. It denotes that the fast(a)s make an optimal decision, beca delectation the descend of returnsgenerated were greater than interest expenses by investments. The figure also show CIMB Group have a higher net interest margin compare to May Bank. This mean CIMB Group is more optimal in qualification decision.Net non-interest margin is the measurement of the amount of non-interest r eventideues of the financial unattackable has been able to collect relative to the amount of noninterest cost incurred. In 2011, the net non-interest margin of CIMB Group and May Bank is 1.32% and 1% relatively. The result shown that, CIMB Group has higher net non-interest margin. This mean CIMB Group shows better performance in the non-interest revenue compare to May Bank.Net operating margin is a measurement of what proportion of a companys revenue is left over after paying for variable costs of production. The net operating margin for CIMB Group is 3.55% and net operating margin for May Bank is 1.49% in 2011. Thismeans thatCIMB Group makes RM 0.036 for every ringgit of sales and May Bank makes RM 0.015 for every ringgit sales. In the calculation show CIMB Group have better operating performance compare to May Bank.4Earnings per share are a portion of a corporations profit allocated to each outstanding share of common stock. EPS for CIMB Group is 54.2sen and EPS for May Bank is 61.4sen.Both companies have the positive value of EPS which indicates that they are earning profit. According to the EPS amongst these two banks, we found that May Bank has higher EPS compare to CIMB Group. This indicated that May Bank has higher positiveness and performance compare to CIMB Group.Earning spread is measurement of the effectiveness of a financial flyings intermediation function in acquire and lending money and also the intensity of contender in the firms securities industry area. In 2011, CIMB Group has 3.12% of earning spread and May Bank has 2.17% of earning spread. According to the calculation, CIMB Group has higher earning spread compare to May Bank. This mean CIMB Group is more effective in borrowing and lending money and also the intensity of competition in the firms market area compare to May Bank.5 gamble Analysis for MaybankMalayan Banking Berhad (Maybank) is the largest bank in Malaysia. Maybank provides a wide range of service and product to their customers. Over the decades, unspoiled like an opposite(prenominal) financial institutions, Maybank had undergone technologic revolution. Nowadays, customer after part made transaction or payment through bank electronic harbour system (maybank2u). However, this system may not operate or function hearty. For representative, round users have get of unable to receive Maybank TAC number through their phone. It causes inconvenience to Maybanks customer because they give the sacknot made payment via Maybank2u. there was an announcement on Maybank website. It stated, We are experiencing a general issue with TACs from Maybank2u at the moment. Some users may experience delays in receiving it. The bank is exposed to operation peril.Besides that, world receive fraudulent telephone calls, emails or SMS claiming to be from Maybank. Those fraudulent telephone calls, emails or SMS entrust request personalised and confidential account details such as personal identification number, passwords, conformation of recognize card transaction, and so on from Maybank user. Consequently, their money or mention card give be embezzled. There are a few cases happened and it caused public unconfident to bank. Public provide p rotagonistt panic and withdraw money from bank. The banks liquidness condition get out lessening and be exposed to runniness take chances.According to Per painfulanan Insurance Deposit Malaysia (PIDM), on May 2010, the Prime government minister Dato Sri MohdNajib bin Tun Haji Abdul Razak, who is also our Finance Minister, had announced the increase in deposit insurance shape to RM 250,000 from previous RM 60,000 with effective from 31st December 2010. This entrust create credit jeopardy, management endangerment and liquidity jeopardize. Increase of deposit insurance limit cause moral hazard problem to rise. Maybank may invest in through those take chancesy investments or holding endangermenty asset. Maybank will be less inducement to protect banks benefit and does not mind to hold high risky asset because PIDM will pay off insurance limit up to RM 250,000.6Next, Bank Negara Malaysia (BNM) announces to raise Statutory Reserve Requirement (SRR) Ratio from 3.00% to 4.00%, effective from 16 July 2011. Increased in Reserve Requirement Ratio causes Maybank ability to lending out decreased. Thus, Maybank become more prudent in approving contribute with appropriate review and documentation. It merchant ship be seen by nonperforming loan ratio of 1.30% in 2011 compare with 1.63% in 2010. When nonperforming loan ratios of Maybank decrease, it will cause credit risk to smother too.Risk weighted capital ratio of Maybank in 2011 is 15.36% (assuming full investment of Dividend Reinvestment Plan). Thus, it will expose to liquidity risk and credit risk. Risk weight also known as the capital adequacy framework. The minimum regulatory of capital adequacy requirement for the risk weighted capital ratio is 8% according to BNM rules. Since risk weighted capital ratio of Maybank exceed minimum requirement of capital adequacy, we can know that Maybank is well-capitalized. Maybank has good liquidity condition and Maybank can loan this amount of money to generate mo re outcome. However, it will increase the credit risk. Maybank may lend loan to those customer who has high risk.Furthermore, The star in 2011 stated that Maybank had issue RM 1 billion of subordinated notes under its notes programmer of up to RM 3 billion. Maybank say the subordinated notes including two tranche. Tranche 1 is RM 750million with tenure of 10 years on a 10 non-called 5 bum and Tranche 2 is RM 250 million with tenure of 12 years on 12 non-called 7 undercoat. The subordinated notes received a strong support from investors. Capital of Maybank will increase by issuing RM 1 billion of notes. Hence, Maybank will not be facing capital risk.Maybank may feeling market risk referable to reassign of market risk. Maybank may be able to determine the interest rate. Consequently, Maybank will face significant losses.7From 11 May 2011, Maybank announced to increase its deposit and base lending rates (BLR). Deposits rate will be risen up to 30 basis points. However BLR will i ncrease by 30 basis to 6.60% p.a from previous 6.30% p.a. It will give contact to capital risk, liquidity risk and market risk. BLR is the cost of borrowing money. Increasing BLR causes addition payment added on shoulder on borrower. Deposit rate increase will attract depositors keep their money in Maybank. From Maybank annual report 2011, the Groups customer deposit grew 19.0% to RM 282.0billion while it change magnitude 14.9% to RM 201.5billion at the Bank level.Last but not least, Maybank also exposed to market risk. In June 2011, age of director of Maybank had declared that they had stopped the plan that take over RHB Capital Bhd and would not to pursue the practical merger at this movement. When this merger negotiations breakdown, Maybank share price had decline 2 sen to close at RM 8.82. It is due to great disappointment from investors.Risk Analysis for CIMB GroupAs we know, every business will yield risk while for CIMB Group will also wont be in the exception. To prevent those losses, CIMB Group had employed Enterprise-Wide Risk Management Framework to manage the risk that king face by CIMB Group since year 2008.At first, the most common risk that will face by a bank is credit risk. reference point risk is the risk which means the declining of assets value for a firm while the loan is one of the important assets that will face this type of risk for a bank. For CIMB Group, they had done some analytic thinking to analyst the credit risk and try to figure out the way to knock down the increasing of the credit risk such as geographic distribution. Geographic distribution is the way of managing the portfolio contrastingly according each country and the value of the loan that provide for each country also will be different. For example the CIMBBG in Malaysia and Singapore, due to headquartered for CIMB Group is in Kuala Lumpur, Malaysia therefore the main credit exposure is lots higher for Malaysia which is RM191435925000 compare to Singapore which only have RM16373165000. Besides that, the group risk management will oversee the establish credit limits by daily in tend to get over the credit risk that will take by CIMB too.8 Next is about the liquidity risk. liquid state risk is about the fortune of firm cant transform the assets into fund in order to make profit or other purpose. From the risk weighted capital ratio that stated by CIMB Group in year 2011 is rough 16.8% which shows the increase of value compare to year 2010 which only have 15%. The announcement of the amount will cause reduce of chance for CIMB Group expose to the liquidity risk and also credit risk as well. According the rule set by Bank Negara Malaysia which is the minimum regulatory of capital adequacy requirement for the risk weighted capital ratio is 8%. By comparing, we will know that the liquidity of CIMB Group is in good condition which will reduce the liquidity risk and credit risk too. This will increase the confident of customers and investment towards CIMB Group in the aforesaid(prenominal) time.On April year 2011, one of the articles from The Star state out that CIMB Group had earlier secured several US dollar term loan facilities but will all-in pricing of 0.9%-0.98% per annum which is above the London Interbank Offered Rate (LIBOR). This situation tends let CIMB Group get reduce for liquidity risk but will increase the debt of CIMB Group. On 30 September 2011, CIMB Group announced that they had a market capitalisation of approximately RM51.8 billion. With this high amount of market capitalisation, the liquidity risk that will face by CIMB Group will be greatly reduced at the corresponding time CIMB Group also been proved that dint face the capital risk as well.Besides that, markets risk also one of the risks that might face by CIMB Group. Market risk is about the probability that the firm loss the position in the market which is the value of firms investment portfolio declining due to economic changes or some of the events that will impact the market. In year 2011, the Dato Sri NazirRazak, Group Chief Executive of CIMB Group stated Our primitive disappointment was our share price which significantly underperformed benchmarks. This situation will cause CIMB Group expose to the market risk. Public or investor might lose confidence toward CIMB Group.9At 2nd February year 2011, one of the article stated that CIMB said industrial production in emerging markets is growing faster than these developed countries, and this will support liquidity flows into the emerging markets. Furthermore, on April year 2011, CIMB Group had involve in sukuk issue and in the same time CIMB Group deputy CEO andtreasurer, Datuk Lee K Kwan come out with a narrative The current market environment remains very conducive for corporate issuers including banks to tap the fixed income markets. This var. of teachings will tend to reduce the market risk that face by CIMB GroupReputation risk is about the negative publicity imp act that might cause the customers of the firm not to use the services of the firm. For CIMB Group, in order to reduce this kind of risk, some of the activities were carry out in tend to hold back good relation with public. In year 2011, Breakthrough brought a van for benefit of 10 gardening families in a remote village near Lundu in Sarawak by getting the fund that provide by CIMB Foundation. This activity had reduced the chance that CIMB Group expose in reputation risk. functional risk is about the losses that cause by the failures happen in organisations internal activities. Basel II Pillar 3 disclosures for year 2011 stated that in July 2011,CIMB Group had strengthened their infrastructure and the operational risk management division had been created to taking care the measure of operational risk for CIMB Group. Therefore CIMB Group has greater chance to reduce the operational risk.10Recommendation for MaybankMarket riskMarket risk composes by 4 elements which are interest ra te risk, foreign exchange rate risk, commodity price risk and equity price risk. In order to reduce the risk, Maybank need to determine whether Maybank has interest-sensitive assets or interest-sensitive liabilities in the period. Market rate of interest is determined by the market and bank only can become price taker and accept the interest rate given. If Maybank has interest-sensitive asset, Maybank will suffer losses if the interest rates decrease. While if Maybank has interest-sensitive liabilities, Maybank will suffer losses if the interest risk increase. From the annual report of Maybank, we can know that Maybank has a negative gap of cumulative interest rate. In order to reduce the risk, Maybank should try to increase interest-sensitive assets and reduce interest-sensitive liabilities. Besides that, Maybank can use various hedging tools to reduce the effect of the currency exposure in the appropriate circumstance. In addition, Maybank can reduce the exposure to market risk t hrough swaps and features or offset it from the on and off labyrinthine sense sheet activities.Operating riskFraud management is the main cause of increase operating risk. In year 2011, there are many cases about fraudulent telephone calls, SMS or emails requiring bank users personal financial information. Many people had been cheated and lost a huge amount of money. This cases increase the fear of public. To diminish the fraud, announcement made on the website of Maybank is insufficient. Maybank should undertake a series of initiatives to ensure that the risk arising from the fraud can be reduced as lower as possible. Maybank can implement Anti-Fraud Road show, Awareness course of study and Introduction of Fraud rules to reduce the fraud. It can increase the sensibleness from public about fraud and cruel activities. Besides that, it also can prevent Maybank employees cooperate with those criminal group by disclose Maybank users information.11Credit RiskMaybank need to have st rong emphasis in creating and enhancing credit risk awareness to reduce the exposure of credit risk. Besides that, Maybank also need to maintain weighted capital ratio at 8%. In order to minimize the credit risk, Maybank should be more prudent on screening borrowers application, repayment ability of borrower, credit standing, valuable of indirect and guarantor of borrower. If the borrower unable to offset the loan, the collateral may reduce the credit risk as much as possible. Furthermore, Maybank can use debt restructuring to reduce non-performance loan. Banks balance sheet may be burden and facing credit risk due to increase bad loan. Those borrowers who are unable to repay the loan can negotiate with Maybank. Debt restructuring can reduce the bad loan and provide a win-win situation for Maybank and borrower who unable to offset the loan or mortgage.Liquidity RiskBasically liquidity risk can be defined as funding liquidity risk and market liquidity risk. If bank has a high level of liquidity risk, the bank will face short-of cash and bank run. According to annual report of Maybank 2011, exposure to liquidity risk can be reduced through contracting derivatives where the underlying items are widely traded. Maybank should not hold too much high risky assets because heavier use of purchased funds will cause a shortage of liquidity. Maybank also can diversify funding source to raise the fund. In the point of view, Maybank will have sufficient amount to meet those daily transaction. Furthermore, Maybank can implement a plan or strategy to handle different liquidity crisis scenarios especially during economic crisis.12 In conclusion, those various risks that exposed in Maybank are influencing to each other. If the management is inefficiency, it will increase the management risk. The management risk will create market risk. Maybank unable to determine the market interest rate, Maybank will face significant losses and affect bank capital. Credit risk may increase an d the liquidity conditions of Maybank reduce. Reduce in liquidity condition causes Maybank in ability to fully approve loan demand. Asset quality may decrease and affect the earning performance of Maybank.Recommendation for CIMB GroupCredit RiskIn order for CIMB Group get expose into the credit risk, CIMB Group can try to strengthen up the condition for their customer to get the loan. The detail of financial statement of customers should be checked clearly before lending out the loan. Training for the staff should carry out, so the staff can know the way how to keep follow up with the customer if the loan oasis pays back on time. With this way the chance getting the charge-offs will be reduce and the losses of firm will tend to reduce too. Those analyses that done before should be carry on so that CIMB Group can easily figure out those problem customers and avoid getting into the risk. CIMB Group can even try to have the credit insurance so that they can claim from the insurance fo r to cover the losses.Liquidity RiskAs we know, a firm with high liquidity risk will bring the firm get into bad situation. Therefore CIMB Group should try their best in managing their assets in tend to reduce the liquidity risk. By maintain or keep increasing the risk weighted capital ratio will be helpful to CIMB Group. High risk weighted capital ratio would means the firm will had large amount of cash to carry out the activities. CIMB Group can try to come out with a small group that only deal with liquidity of the firm. This might help CIMB Group to know more the liquidity status for their firm. Besides that, by not holding too much of the high risk assets can reduce the liquidity risk too. This is due to high risk assets will cause firm get losses and the fund will be stuck with those high risk assets. oppose a good relationship with other competitors also a way to prevent increase the risk. For example, CIMB Group and May Bank maintain a good relationship. When something went wrong for CIMB Group, May Bank might unforced to help CIMB Group in order to solve the problem.Market Risk13Market risk had involved two types of risk which is price risk and interest rate risk. For price risk, market survey can be always carrying out for get to know the need of the market. Market survey might let CIMB Group get to know the trend of the market and the reason or fraud might affect the market price. So CIMB Group can react faster to capture the market before others. While for interest risk, CIMB Group has no choice but to be aware with the economic changes or the event that might affect the market. This can help CIMB Group to avoid suffer from the losses due to the changes of interest rate.Operational RiskFor CIMB Group to avoid the operational risk, one of the solutions is training for the staff. After training, those staffs will be knows well for the whole operating system of CIMB Group. Therefore the human mistake can be lower down. For those info and networking system should be always been taking care by those qualify skilled histrion. This will be lower down the system error that might occur. Even got error occur, those qualify skilled worker can try to fix it in time to prevent the huge amount of losses. For those ATM motorcar should always been taking care for time to time to prevent error occur and can secureness in time if any problem with the machine.Reputation RiskCIMB Group should always be aware when dealing with public. This is because if misunderstanding or problem occur will tend bring negative impact to the image of CIMB Group. When this situation happen, the confident of customer towards CIMB Group will be pulling down and CIMB Group will expose in the reputation risk as well. Therefore those activities such as superlative fund for people who needed be carry out in order to build up a good image for the public.As conclusion, to prevent CIMB Group get into different type of risks, the risk management department in CIMB Gr oup had played the important role. Risk measurement should be done time by time so that when problem occur, the series of actions can be taken just in time. While for the insurance is to cover the losses when something unexpected occur so that the firm can be more focus on their main business.14