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CNBC Transcript: Zafrul Aziz, CEO, CIMB


Following is the transcript of CNBC's interview with Zafrul Aziz, CEO of CIMB at the Credit Suisse Asian Investment Conference in Hong Kong. The interview was broadcast on Squawk Box on 19 March 2018.

All references must be sourced to a "CNBC Interview'.

Interviewed by CNBC's Akiko Fujita.

Akiko Fujita (AF): We're joined by the CEO of CIMB, Zafrul Aziz, here at the conference for us. Welcome.

Zafrul Aziz: Thank you.

AF: I want to start on the macro picture, the domestic economy, because the numbers certainly seem to be pointing to some kind of momentum we are seeing here. The IMF just coming out, expecting 5.3 per cent growth this year, slower than the 5.8 we saw last year, but certainly positives here. We're seeing growth running above potential, strong employment boosting private consumption. Looking at how things are rolling right now, what do you see as the biggest risk that could derail this run?

Zafrul Aziz: Yeah I think, I mean our own forecasts indicates that this will grow around 5.2 percent. It's still respectable growth but given last year a good year, 5.5 percent growth. If we look at where the growth is coming from, it's is really coming across from a broad… from nearly every other division, every sector in the economy. When you asked me what the risks are, to me the risks are really mitigated by the strong consumption that it's been driven by the Malaysian consumer. But also the large number of infrastructure projects that is happening. That started last year. That will continue this year. So I think the number, the growth of 5.2 to 5.3 per cent is something that is realistic and is achievable.

AF: When you talk about the risk, I think, some of the infrastructure projects in place, what specifically?

Zafrul Aziz: Not risk, I mean, I'm saying that risk is mitigated by that by the investments that are being made in infrastructure. Projects that was announced two, three years ago.

AF: One of the risk events we're looking at later on in the year is, of course, the political election in August, expected there as well. We're looking at, you know, Prime Minister, current Prime Minister Najib Razak, up against Mahathir Mohamad. It seems like there is some fragmentation on the opposition side, especially at the local level. As you see this election play out, how do you see that weighing on sentiment?

Zafrul Aziz: Well, for us in the business community, what we want to see is really stability. And I think, given that what we have gone through the last three-five years, we feel that the stability that we have enjoyed will have to continue. And I think market has factored in that stability because to us, in Malaysia anyway, business is business as usual. And I think the economic fundamentals are there. So that's what's important, rather than the political outcome of the election.

AF: But stability as in, it sounds like you think the status quo will stay even past August?

Zafrul Aziz: I think the stability will be there because, you know, we have a very strong institutions in Malaysia. And the government, you know, the civil service, the government agencies are all well-run. And we've seen that the last five years, the challenges that we've faced as a country. And you can see from the growth that was achieved by Malaysia over the last two, three years.

AF: Let's talk about some of the initiatives within CIMB. Of course the T-18 initiative that was set out in 2015 - implementation to be completed by the end of this year. Looking at some of your growth targets: ROE of more than 15 per cent, cost to income ratio of less than 50 percent. Where are you in that process right now?

Zafrul Aziz: So, T-18 is a four-year program. T-18 is "Target 2018" so we are now, like you said, towards the end of that. Six, well, nine months to go. For cost to income ratio, we are on track to get to that 50 per cent. We announced our results last month. 2017, our cost-income ratio was around 51.8 percent. Our ROE target is actually not 15 percent, it's actually 10.5, 11 per cent. And that's also again on track, provided that we are able to achieve the loan growth target and our cost-to-income target for 2018.

AF: Finally, playing to the theme here at AIC. It's, of course, disruption as usual. When you look at your sector, we've certainly seen a lot of disruption. It's not just about the traditional banks anymore. We're seeing some of the newer, emerging players - if you can call something like an Alibaba that. Tech companies getting into the lending space increasingly. In order to survive, I know you have a tie-up with Alibaba already, but is that a given, in order for traditional banks to compete in this new landscape?

Zafrul Aziz: Yeah I think it's given. Definitely a given.

AF: Or a necessity, I should say. In order to stay ahead of some of these big fintech players?

Zafrul Aziz: If you look at the banks today, what they have forgotten this how to basically engage the customers. Over the years we have forgotten that. And that's why we created this space for the nonbanks to come in, because they understand the customers better. From the customer experience point of view. Even the product they have, they have they cater to the needs of the customers. So I think banks, definitely technology will empower the banks to do that. But I think it goes deeper than that. I think, as banks we need to understand what the customer wants and how the customer wants to be engaged. Today, the customer wants to be engaged instantly. They want decisions to be made. They want instant gratification. And that banks have to move towards that. But I think banks working alone is difficult. Disrupting themselves, meaning we disrupting ourselves, I think it's going to be challenges of the mindset. So we need to work together and that's why we have a joint venture. One of them which is with Alibaba. We also have other joint ventures and the other fintech companies. But the other thing that the bank has to be open to is to be open to being part of an ecosystem. Because when you buy a house, you think of the banks second. So you need to somehow think that the banks have to be part of the decision making process early on, when you buy a house. So you need to be involved in the housing ecosystem. These are examples. But you're right. I think "do nothing" is really to, you know, you won't survive.

AF: Certainly, a lot more connected as a result of new players have emerged.

Zafrul Aziz: Media industry have seen it first!

AF: Absolutely. We're going to leave it on that note. Zafrul Aziz, joining us from CIMB. Appreciate your time today.