CIMB Group 2025: Assessing the Capital Efficiency of a Forward30 Pivot

CIMB's first full year under its Forward30 strategy delivered solid, if unspectacular, results. The bank posted a net profit of RM7.9 billion, marking a 1.7% year-over-year growth. This translated into an annualised return on average equity (ROE) of 11.3%, a modest improvement of 10 basis points. Revenue, however, grew only 0.8% to RM22.47 billion, a figure that underscores the muted expansion in its core business.

These metrics validate the thesis of disciplined capital management. The bank successfully navigated persistent rate cuts, limiting net interest margin compression to just 8 basis points and maintaining net interest income at RM15.3 billion. Its proactive capital reallocation, particularly toward the more stable Malaysian market, contributed to a rise in that region's profit contribution from 57% to 61%. This prudent execution is reflected in a healthy Common Equity Tier 1 ratio of 14.3% and a record dividend payout of RM5.1 billion.

Yet the strategic pivot has not yet generated a significant quality premium. The profit growth remains muted, and the modest revenue expansion suggests the benefits of the Forward30 roadmap-capital reallocation, cross-selling, and digital investment-are not yet translating into accelerated earnings momentum. The bank's operating expense growth was held to 2.0%, and non-interest income rose, but the overall financial profile indicates a period of consolidation rather than a breakout. For institutional investors, this points to a company executing its plan well but still within a low-growth, high-competition environment where the risk premium has not yet been materially compressed.

The Deposit Franchise & Cost of Funds: A Quality Factor

For institutional investors, the quality of a bank's funding base is a critical determinant of its risk-adjusted returns. CIMB's 2025 results demonstrate a deliberate strategy to build this quality, directly impacting its resilience in a challenging rate environment. The bank's primary lever here is its deposit franchise, which it is actively cultivating to reduce reliance on more expensive wholesale funding.

This focus is evident in the numbers. Total deposits grew 5.4% year-on-year to RM524.4 billion, with current account and savings account (CASA) balances rising 1.6% to RM224.1 billion. This growth, while modest, helped drive a 21 basis point reduction in the cost of funds. That reduction was the key buffer against persistent rate cuts, allowing the bank to limit net interest margin compression to just 8 basis points for the year. In other words, a stronger cash franchise mitigated the direct pressure on profitability from falling rates, a tangible benefit of the "building strong cash franchise" pillar of Forward30.

The bank's capital allocation strategy reinforces this quality play. By proactively reallocating capital to the more stable Malaysian market, CIMB boosted that region's profit contribution from 57% to 61%. This regional focus likely supports the deposit growth, as local businesses and consumers tend to anchor their banking relationships regionally. The resulting stability in funding costs is a structural tailwind for net interest income, which held steady at RM15.3 billion.

The ultimate validation of this strategy's success is the record capital return to shareholders. The bank proposed a total annual dividend of 47.1 sen per share, representing a record payout of RM5.1 billion. This is a powerful signal of earnings sustainability and capital adequacy. It confirms that the operating profits generated from the disciplined execution of Forward30 are not just sufficient but robust enough to fund a substantial return without compromising the bank's CET1 ratio of 14.3%.

The bottom line for portfolio construction is that CIMB is building a more resilient earnings engine. A lower, more stable cost of funds is a classic quality factor that improves the risk premium. However, the market has yet to fully price in this advantage, as evidenced by the muted ROE improvement. For a conviction buy, the thesis hinges on the strategy delivering tangible margin resilience beyond just stabilization. The record dividend is a strong start, but the quality premium will only be realized if this deposit-driven cost advantage begins to translate into accelerating earnings growth in the years ahead.

Digital/AI Investment & Portfolio Construction Implications

CIMB's Forward30 strategy includes a clear, high-conviction bet on the future of financial infrastructure, but it is a long-term play with negligible near-term impact on the income statement. The bank has committed to using tokenised format for part of its future funding requirements, aligning with its participation in Bank Negara Malaysia's Digital Asset Innovation Hub. This is a deliberate, forward-looking ambition that signals a belief in blockchain's potential to enhance efficiency and create new value streams. However, the financial impact of this initiative is expected to be minimal in the near term, serving more as a strategic positioning move than a catalyst for immediate earnings.

This digital ambition is part of a broader, sustained investment in technology and capabilities. In the fiscal year just ended, CIMB invested over RM1.7 billion in technology, a figure that underscores the capital allocation behind its "simpler, better and faster" pillar. A significant portion of this was directed toward AI, with over RM100 million spent on AI training and upskilling staff. The goal here is clear: to scale operational efficiency, reduce cost-to-serve, and enhance cross-selling through tools that improve client onboarding, risk modeling, and relationship management. These are foundational investments that aim to improve the franchise's structural quality and resilience over a multi-year horizon.

For institutional portfolio construction, these points converge on a critical distinction. The bank is making long-term bets on digital infrastructure and AI that are essential for maintaining a competitive edge and supporting future growth. Yet, in the context of 2025 results, they did not move the needle for near-term risk-adjusted returns. The record dividend and modest ROE improvement were driven by capital reallocation and deposit franchise strength, not by these new technology initiatives. This creates a portfolio allocation tension: the investments are necessary for the long-term thesis but do not currently justify a premium valuation or a near-term overweight position based on earnings momentum.

The bottom line is that CIMB is building a more capable and efficient platform for the future. The tokenisation commitment and heavy tech spending are signs of a management team thinking beyond the next quarter. For a portfolio, this enhances the quality factor and reduces long-term operational risk. But it does not change the near-term investment case, which remains anchored in capital discipline and a stable, high-quality deposit base. These are structural upgrades, not immediate catalysts.

Catalysts, Risks, and Sector Rotation Considerations

The investment case for CIMB now hinges on a clear transition from execution to tangible outcomes. The primary catalyst is the forward delivery of its capital reallocation and cross-selling initiatives, which should begin to improve return on equity and cost efficiency over the medium term. The bank has already demonstrated disciplined capital management, reallocating more resources to the stable Malaysian market and boosting its profit contribution from 57% to 61%. The next phase is to see this capital deployed more aggressively to drive higher-yielding assets and deepen client relationships, translating the "building strong cash franchise" and "cross-selling products" pillars into measurable margin expansion.

Institutional investors should watch two key forward-looking metrics. First, a deceleration in the cost of risk is critical. While the bank maintained a healthy CET1 ratio of 14.3%, any uptick in non-performing loans or provisions would directly pressure profitability and constrain the capital available for strategic investments or shareholder returns. Second, a clearer path to margin resilience as the rate-cut cycle stabilizes is essential. The bank has shown remarkable stability, limiting NIM compression to just 8 basis points. The watchpoint is whether this bottoming out holds, allowing net interest income to grow with loan book expansion and further CASA ratio improvements.

The key risk is that elevated cost base and margin pressure persist, capping returns and limiting the bank's ability to fund its ambitious digital/AI investments or return capital at a premium. Despite a 21 basis point reduction in the cost of funds, the underlying pressure from a low-rate environment remains a structural headwind. If net interest income growth stagnates, it could constrain the capital available for the very initiatives-like AI and blockchain-that are meant to drive future efficiency and growth. This creates a potential feedback loop where near-term profitability limits the funding for long-term transformation.

Connect these points: the investment case hinges on execution, not just ambition. Persistent headwinds could cap returns. For portfolio construction, this means CIMB remains a name for investors with a multi-year horizon who are willing to accept near-term consolidation in exchange for a higher-quality franchise. The record dividend provides a tangible return while the strategy plays out. The sector rotation consideration is that in a market favoring capital allocators with clear, executable plans, CIMB's disciplined approach positions it as a potential overweight candidate. However, the premium will only be realized if the bank can demonstrate that its capital reallocation is starting to accelerate earnings growth beyond stabilization.