Kuala Lumpur: CIMB Bank today announced that it has signed a NPL (Non-Performing Loan) sale agreement to dispose most of its legacy non-performing loans (NPLs) to the newly-formed special purpose company, Southeast Asia Special Asset Management Berhad (SEASAM).
“On the outset, CIMB Bank’s new management team inherited about RM14 billion in legally claimable bad debts from our predecessor banks Bumiputra-Commerce Bank and Southern Bank, with a net book value of RM4.8 billion. As at end 2006 the gross and net NPL ratios of the newly formed CIMB Bank were 9.7% and 6.1% respectively,” said Dato’ Sri Nazir Razak, Group Chief Executive, CIMB Group. “Our strategies for reducing NPL’s have been hugely successful with net book value of NPL’s declining to RM2.3 billion or 52% in less than 3 years. CIMB Bank’s gross and net NPL ratios (excluding CIMB Thai) have been brought down to 5.2% and 2.2% as at 30 September 2009”, he added.
“In fact, NPL management has been one of the best achievements in our overall transformation of CIMB Bank, driven by enhancements to our credit processes and debt restructuring and collection capabilities”, Nazir remarked.
CIMB Bank will dispose a portfolio of mostly legacy NPLs comprising approximately 45,000 accounts with gross loan amount of RM8.4 billion and net book value of RM928 million to SEASAM. The majority of this NPLs originated from the retail consumer segment and some date back to the late 1990’s. It is also worth noting that whilst this portfolio has been written down to RM928 million, total value of collateral is estimated to be RM2.1 billion.
“This corporatisation exercise is a logical next step that will enable the complete segregation and transparency of the ‘good bank’ moving forward. It will result in CIMB Bank’s gross and net-NPL ratios dropping to 2.8% and 1.3% respectively, far superior to Malaysian industry averages,” added Nazir.
“SEASAM will independently pursue various strategies to maximise recoveries on its portfolio. It will also search for suitable strategic investors and potentially, NPLs of other banks in the region to purchase,” said Dato’ Zainal Abidin Putih, Chairman of SEASAM. “We are excited by the prospects of teaming up with others to build an ASEAN special assets business,” he added.
SEASAM will be wholly-owned by CIMB Group and will become a dedicated entity with a clear focus and emphasis on NPL management and the corresponding resolution processes. CIMB Bank is expected to deconsolidate these assets in its financial year ending 31 December 2009. However, SEASAM’s financials will continue to be fully consolidated by CIMB Group and therefore this transaction will have no financial impact at group level.