CIMB’s RM1 billion Sompo Japan deal

Group chief executive Zafrul Aziz said beyond the initial five years, the bank would share the “economic upside” of the partnership besides obtaining the regular commissions generated from the joint business.

 

“For the first five years, the uplift (revenue) to us is RM1 billion ... Sompo will manufacture and use our branches to sell exclusively,” Tengku Zafrul told StarBiz in an interview.

 

The revenue, which includes fees for the distribution network as well as sales, will start to be reflected in CIMB’s financial year ending Dec 31, 2017 results.

Under the 15-year profit-sharing deal sealed early this month, CIMB will sell and distribute Sompo’s non-life insurance products across the markets of Malaysia, Indonesia, Thailand and Singapore. The banking group has more than 1,000 retail branches across the region.

 

While Sompo has a partnership with Berjaya Group Bhd to offer general insurance in Malaysia, Tengku Zafrul said the tie-up with CIMB was at the Sompo group level.

 

“We are the first bank in the region to do this kind of partnership, where we try to sell non-life insurance in four countries at one go,” Tengku Zafrul said.

 

CIMB has started selling in Singapore already and will start in Indonesia by the end of the year. In Malaysia, it currently has an agreement with Allianz Malaysia Bhd that expires in 2017 after which CIMB will distribute Sompo products, while in Thailand the banking group will start selling Sompo in 2018,” Tengku Zafrul said.

 

“These (four countries) are big markets, so RM1 billion is a safe number over five years.”

 

According to Tengku Zafrul, the income upside from the partnership comes with no incremental capital needs or charge and is in line with CIMB’s Target 2018 or T18 strategy, where the focus is on enhancing profita billionity whilst being conscious of capital deployment.

 

“We have freed up some capital by doing just distribution.”

 

CIMB has also boosted its capital base through its recent Sun Life Financial Inc deal, whereby it has agreed to sell its 51% stake in the Indonesian life-insurance venture for RM169mil.

 

Tengku Zafrul said the bank will reap some RM140 million in net proceeds from this deal alone, allowing the country’s second-largest bank by asset size to bring forward its common equity Tier-1 or CET1 capital ratio target of 11% to this year instead of 2018.

 

“Last year, we targeted 10% and managed to do 10.3%. In the first quarter of 2016, the ratio stood at 10.6% and next quarter will be better. This is why we have moved the 11% target to this year.

 

“Capital is a big issue for investors, so we thought 2018 is too long for them to wait. It is to show confidence that the bank is strong, so we brought forward the target this year.”

 

In the first quarter ended March 31, CIMB saw its net profit surge 40.3% to RM813.8 million against RM580.12 million in the same period last year, boosted by higher net interest income and lower loan provisions.

 

Its revenue growth, however, was flat at RM3.73 billion as compared with RM3.68 billion a year ago.

 

Sompo, which has total assets of US$89.7 billion and net written premiums of US$22.5 billion, has identified bancassurance as one of its primary sales channels in the region. It was previously reported that besides Sompo, Munich-based Allianz SE and France’s Axa SA had also made bids for the bancassurance agreement.

 

Tengku Zafrul said CIMB selected Sompo based on a combination of factors, including its dominant position in the Japanese non-life bancassurance market - number 1 in Japan - and its growing business in various Asean markets.

 

At yesterday’s close, shares of CIMB closed four sen higher to RM4.34, giving it a market capitalisation of RM37.88 billion.