We expect easing liquidity for the Indonesian banking sector in 4Q24, with potentially net liquidity releases with lower SRBI issuances. Despite elevated system LDR of 94% (in Jul24), these should limit the risks of funding cost increases, thereby providing banks with more stable NIM outlooks. In addition, they should limit risks from further increases in incremental 12MMA LDRs for the sector, which reached ~173% for Jul-24. For these reasons, we remain bullish on the sector. Under potentially improving liquidity scenarios for the sector, we think BBRI and BBNI would benefit relatively more than BMRI and BBCA. After all, during the past two years of tight liquidity in the system, both of those banks have seen the most margin compression. However, we think BMRI and BBCA would also benefit from potential easing liquidiy in the system.

In this note, we assess projected net SRBIs issuances based on recent trends; which could be one of the key factors in determining liquidity in the banking system. Of late, Bank Indonesia (BI) has not only reduced the frequency of SRBI issuances, but also gross issuances (which would take away liquidity from the banking system). Based on recent issuances in Sep24 as the baseline issuances assumption for 4Q24, we estimate 4Q24 net liquidity releases (i.e., gross issuances to be less than gross maturities) to reach ~IDR80tn, which would be a reversal from net liquidity absorptions that have taken place since 3Q23. We estimate that net releases will persist into 1Q25F – refer to the charts inside for more details. We also think with potentially lesser SRBI issuances we could see better deposit growth, thereby potentially resulting in lower incremental LDRs, which stood at a high 173% in Jul24. This should ease LDR pressure, particularly for BMRI and BBNI, which have seen upward trajectories in recent months (for bank-only results). Indeed, as of Jul24, among the four largest banks (BMRI/BBRI/BBCA/BBNI – all rated Buy), both BMRI and BBNI have LDRs of ~97% - compared to BBRI’s ~87% and BBCA’s ~75%.

Given the above, we remain bullish on the sector. Our preferred banking stocks are BMRI/BBCA for the long term given their respective strong transactional franchises; but admittedly in the near term (2H24), we think BBNI/BBRI could potentially benefit more from better NIM trends.

Valuations and risks

BBCA — We derive our TP of IDR13,200 using 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 — We derive our TP of IDR8,450 using 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 — We derive our TP of IDR6,300 using 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 — We derive our TP of IDR6,100 using DuPont methodology with risk-free of 6.5%, an equity risk premium of 7.8%, growth rate of 8.5% and a CAR-adjusted ROAE of 16.5%. We have also used the FY24F book as reference to derive our TP. At our TP, this implies 1.4x FY24F P/B and 10.9x FY24F PER. Downside risks include worse-than-expected macroeconomic trends, lack of loan re-pricing, tight liquidity competition and higher credit costs and opex growth.

Fig. 1: Gross SRBI maturities (IDRbn)

Fig. 2: Net liquidity (IDRbn)

Fig. 3: Loan vs deposit growth y-y %

Fig. 4: Loan vs deposit y-y growth IDRbn

Fig. 5: LDR

Fig. 6: 12MMA incremental LDR %

Fig. 7: BMRI –NIM vs LDR (RH) trends %

Fig. 8: BBCA – NIM vs LDR (RH) trends %

Fig. 9: BBRI – NIM vs LDR (RH) trends %

Fig. 10: BBNI – NIM vs LDR (RH) trends %

Fig. 11: Bank-only NIM %

Fig. 12: Major banks' 12MMA CoF %

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. 

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Nicholas Santoso (nicholas.santoso@verdhana.id) 

Erwin Wijaya (erwin.wijaya@verdhana.id)