CIMB takes lead in transition to green economy

PETALING JAYA: Banks play a crucial role in financing the transition to a greener economy and CIMB Group Holdings Bhd appears to be hitting the right note on this front locally.

On Wednesday, the banking group, which is majority-owned by Khazanah Nasional Bhd, broke down its decarbonising targets for high carbon-emitting sectors for 2030, being the first amongst the local banks. The chief sectors include oil and gas (O&G) and real estate.

Hong Leong Investment Bank (HLIB) Research said CIMB’s strong traction on its sustainability commitments, plus raising the bar on helping to drive the transition to a low-carbon economy in Asean, reaffirms its view and analysis that CIMB is one of the leaders in the environmental, social and governance (ESG) space.

“Overall, forecasts were kept and we still believe CIMB’s risk-reward profile is balanced since its share price has performed well year-to-date.

“Maintain ‘hold’ with a Gordon growth model target price of RM6.80, based on 0.96 times financial year 2025 (FY25) price-to-book with the assumption of 10.5% return on equity (ROE),” the research firm said in a report yesterday.

HLIB Research said this valuation was above its five-year and sector mean of 0.81-0.84 times, which was fair since its ROE output was two percentage points higher versus the pre-pandemic level.

Hence, it reckons that CIMB will remain as one of the research firm’s top scorers in the next ESG banking review.

CIMB was ranked first among peers with an ESG grade of 4.3 points (out of five) in HLIB Research’s review of ESG commitments of local banks done in January this year. The average rating for the banking sector stood at 3.8 points.

Back to CIMB’s sustainability commitments, among the key takeaways were that the bank is on track to achieve its RM100bil sustainability financing target by end-2024. It will also no longer provide new dedicated financing for upstream oil fields starting from Jan 1, 2025.

Kenanga Research said although the O&G sector only accounted for 2% of the group’s overall loan book, it is identified to be one of the more urgent with regards to decarbonisation.

“To decarbonise the sector, CIMB had previously abstained from providing new financing to upstream oil fields in 2021. Going forward, its exposure to this sector may be mostly skewed towards financing diversification strategies for its existing O&G accounts,” it added.

As for real estate, CIMB’s total portfolio (comprising both retail and non-retail mortgages) make up 38% of the group’s total loan book. However, the sector makes up 17% of its overall financed emissions.

“As the sector is likely to have the largest physical footprint, Kenanga Research said more meaningful improvements to the sector may be dependent on the overall decarbonisation of the power grid.

“That said, the group sees opportunities in decarbonising its portfolio by financing more energy-efficient buildings and developments. It may also provide stronger support to funding energy transition initiatives (ie, renewable energy solutions) as well as facilitating more effective recording and reporting of energy consumption,” said Kenanga, which maintained an “outperform” call on the stock with a RM7.60 target price.

It said the stock is supported by its regional diversification, especially in terms of non-interest income. CIMB’s return to double-digit ROE could be indicative of its prospects, while offering attractive dividend yields of 6% in the medium term, it added.