Below, we present two charts (Fig. 1 and Fig. 2) depicting the loan-to-CASA and loan-to-saving trends across Indonesia banks over the past two years (we use Jul-23 and Jul-24 for reference). CASA is typically associated with low funding costs. However, in recent years, we have seen in some cases current accounts (CA), which are typically associated with corporates/enterprises accounts, have become increasingly rate sensitive. Meanwhile, saving accounts (SA) are typically associated with individual deposits, which are NOT rate sensitive in nature.

Comparing banks’ loan-to-CASA would provide us with some color on how much of a bank’s loan portfolio is funded by CASA. As shown in Fig. 1, only BBCA has a loan-to-CASA ratio of less than 100% (which suggests that the bank typically would benefit from a higher rate environment). Meanwhile, BMRI has the second-lowest loan-to-CASA ratio. On the other hand, BBRI is the only bank that has seen a lower loan-to-CASA trend, suggesting its healthier loan funding, and implying that the bank should be relatively less impacted from the recent rate increases. This is also reflected in BBRI’s bank-only YTD Aug-24 results, which demonstrated that despite having relatively lower loan growth of ~7% y-y, the bank reported NII growth of ~3% y-y (similar to BMRI but it posted loan growth of ~21% y-y).

In terms of loan-to-savings ratio trend, BBCA had the lowest ratio of 149% in Jul-24, followed by BRIS at 197% and BBRI at 232%. Having said that, BMRI was the only bank with the least increase in the loan-to-savings ratio of 245% (vs 244% in Jul-23). We attribute this to the bank’s growing importance as a transactional bank in Indonesia, which we think will continue in the medium term.

Another conclusion that we can draw from here is that overall liquidity remains tight. Thus, in our opinion, despite recent BI rate cuts, we see limited scope for banks to reduce overall funding costs. For these reasons, it is possible that lending rates may not come down. On the contrary, we won’t be surprised to see some upward loan repricing.

On the back of these, we retain BBCA as our top pick. In the syariah space, BRIS remains our preferred stock.

Valuations and risks

BBCA (Buy) — Our TP of IDR13,200 is based on DuPont analysis with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 0.8x and a CAR-adjusted ROAE of 24.5%. Our TP implies 5.4x FY25F P/B (vs current price valuation of 4.2x) and 26.9x FY25F P/E (vs current price valuation of 21.0x). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

BMRI (Buy) — Our TP of IDR8,450 is based on DuPont methodology. Key parameters are a risk-free rate of 6.5%, an equity risk premium of 7.8%, a CAR-adjusted ROAE of 19.8% and beta of 1.03x. We have also used 2025F book as reference. Our TP implies a 2.5x FY25F P/B and a 12.4x FY25F P/E – compared to current price valuations of a 2.1x and a 10.6x, respectively. Key downside risks are worse-than-expected macroeconomic trends, government intervention, tight liquidity competition, and higher credit cost and opex growth.

BBRI (Buy) — Our TP of IDR6,300 is based on DuPont methodology, assuming a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 10.0%, beta 0.8x and a CAR-adjusted ROAE of 18.0%. We also use 2025F book as reference. The implied multiples at our TP are 2.9x 2025F book and 14.8x 2025F earnings (compared to current multiples of 2.0x and 10.7x, respectively). Key risks to our view are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition (which would increase funding cost), and worsening credit quality (which would raise credit costs), and higher opex.

BBNI (Buy) — Our TP of IDR6,600 based on DuPont analysis, assuming a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 8.5%, beta 1.0x and a CAR-adjusted ROAE of 16.5%. We also use 2025F book as reference. The implied multiples at our TP are 1.4x 2025F book and 10.7x 2025F earnings (compared to current multiples of 1.2x and 9.3x, respectively). Key risks to our view are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition (which would increase funding cost), and worsening credit quality (which would raise credit costs), and higher opex.

BRIS (Buy) — Our TP of IDR3,800 is based on DuPont methodology, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 1.2x and a CAR-adjusted ROAE of 18.1%. We have also used 2025F book value in deriving our TP. Our TP implies a FY25F P/B of 3.3x and a FY25F P/E of 22.0x. Risks are worsening macroeconomic trends, unfavorable regulatory changes, tighter liquidity competition that could increase funding costs, worsening credit quality that could raise credit costs, material management changes, and/or persistently high opex.

Fig. 1: Indonesia banks loan-to-CASA ratio (%)

Fig. 2: Indonesia banks loan-to-savings deposit ratio (%)

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.

This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

RESTRICTIONS ON DISTRIBUTION

By accepting this report, the recipient hereof represents and warrants that you are entitled to receive such report in accordance with the restrictions and agrees to be bound by the limitations contained herein. Neither this report nor any copy hereof may be distributed except in compliance with applicable Indonesian capital market laws and regulations. 

Nicholas Santoso (nicholas.santoso@verdhana.id)

Erwin Wijaya (erwin.wijaya@verdhana.id)