Indonesia Banks - Outlook 2025 and YTD Nov-24 results summary

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Outlook 2025 and YTD Nov-24 results summary

Going into 2025, our view on the Indonesia banking sector remains largely intact – i.e. we continue to prefer major banks, particularly the ones with strong deposit/transaction franchises as we believe they will continue to garner superior loan growth and/or better NIM trends. Broadly, we expect slower loan growth in 2025F vs 2023 across the Indonesia banking sector with predominantly non-major banks exhibiting inferior growth, which is reflected in their inferior deposit franchises (and hence higher funding costs). Liquidity should remain tight in 2025F, but with potentially slower loan growth, we do not expect a worsening of liquidity trends (thus, increases in funding costs may be muted or more manageable than the trends over the last two years suggest). Thus, despite our expectation of slower loan growth, we think the major banks will continue to report superior (and stable) NIMs, leading to their improved earnings profiles in 2025F as the banks do not need to compensate lower NIMs with higher loan growth (much like what we have seen in recent years, e.g. 2022-24). This suggests that credit costs in 2025F could be similar to 2024 levels, resulting in more stable LLRs across banks. As we enter 2025, one particular area of concern relates to asset-quality trends – specifically, the estimated monthly write-off (WO) trends which have stayed persistently elevated (though not worsening). On average, the major Indonesia banks’ average annualized WO rate is ~170bp. Notably, BBRI has the highest WO rate of ~330bp (which we believe has been largely priced in with sizeable credit costs/CoC of similar trends). Also, we note, WOs at BBNI have been higher than 2023’s but lagging CoC (resulting in its declining LLR). On the flip side, we see improving WO trends at BMRI and BRIS, while BBCA continues to have the least WO rate.

In this note, we also look at major banks’ (including BRIS) recent bank-only YTD Nov-24 results, which broadly showed some earnings stability (and thus improved earnings visibility). Specifically, asset yields have improved while funding costs have stabilized (although liquidity in the banking system stays tight). Indeed, the average monthly cost of funding (CoF) of these major banks has been hovering at ~2.6% (p.a.). With stable funding costs, we expect more stable net interest margins (NIMs) for these banks, which would make better core earnings visibility (i.e. PPOP). And alongside the potential maturing of some SRBIs (ownership of Bank Indonesia Rupiah Securities) in 4Q24F (approximately ~IDR16.4tn), we anticipate some liquidity injection in the banking sector. Combined with BI’s likely stable rates, we think the funding costs of major banks could remain stable. As of Nov-24, the average monthly NIM of major banks continued to show a stable trajectory of 5.2%, up from the low of 5.0%/5.1% in Feb-2024/Apr-2024. These should result in some FY25F earnings improvement for these banks, thereby reducing downside risks. If stable funding costs are sustained and considering the loan growth trajectory, NII growth would improve (and thus better earnings trends without having to drive down cost of credit [CoC]).

Based on the results of these major banks, BBCA continues to be our preferred banking stock. BBCA has continued to see superior loan growth (primarily driven by its corporate customers as well as better funding costs, particularly for saving deposits). Indeed, YTD Nov-24, BMRI (and BBCA) has demonstrated most visible growth in saving deposits. These reflect its successful strategy to capture business downward value chains with low funding costs. Outside major banks, BRIS is our preferred stock as it has a significant market share in the syariah banking space.

We also think that BBRI may see its earnings bottom out (despite credit costs remaining elevated). The bank has also kept a prudent provisioning approach to reduce credit risks at its mass-market (micro) segment as well as bringing down micro loan growth to a healthy mid-single digit percentage. A key challenge for BBRI is extremely slow deposit growth at its micro/ultra micro customer base. Our assessment suggests that much of this could be due to leakages in deposits whereby after loan disbursements, BBRI’s micro borrowers may have to pay their obligations (for working capital purposes) which resulted in deposit outflow. Thus, the key challenge for BBRI would be how to capture upward-value chains of its micro ecosystems, which in our opinion may require the bank to expand its corporate loan exposures. So far, we have seen early signs of micro deposit growth recovering at BBRI.

Summary of YTD Nov-2024 results

Below is a summary of major banks’ YTD Nov-24 results. Although we still see largely tight liquidity in the banking system, we have seen a more stable funding cost trend (hence NIMs). While still in the early days, we think near-term funding costs could remain largely unchanged, and these could become near-term earnings drivers for banks.

YTD Nov-24 net interest income from major banks +3% y-y
- BBCA +9% y-y (for the first time BBCA delivered highest bank-only profit)
- BRIS +6% y-y
- BMRI +5% y-y
- BBRI +1% y-y
- BBNI -4% y-y
YTD Nov-24 PPOP from major banks +9% y-y
- BBCA +14% y-y
- BBRI +13% y-y
- BRIS +9% y-y
- BMRI +6% y-y
- BBNI -2% y-y
YTD Nov-24 CoC for major banks at 1.5% (+10bp y-y)
- BBRI CoC of 3.3% (+70bp y-y) — as BBRI continues writing off NPLs in small and/or micro segments
- BBNI CoC of 1.0% (-30bp y-y)
- BRIS CoC of 0.8% (-50bps y-y as write-off trends have been declining and predominantly loans are salary-based.)
- BMRI CoC of 0.7% (+10bp y-y)
- BBCA CoC of 0.2% (-10bp y-y)
YTD Nov-24 implied risk-adj NIM for major banks at 4.3%
- BBCA 5.6% (flat y-y) as NIM @ 5.8% (+40bp y-y)
- BRIS 5.0% (+40bps y-y) as NIM @ 5.2% (flat y-y)
- BMRI 4.2% (-50bp y-y) as NIM @ 4.5% (-20bp y-y)
- BBRI 3.4% (-80bp y-y) as NIM @ 6.1% (-40bp y-y)
- BBNI 3.3% (+10bp y-y) as NIM @ 4.1% (+10bp y-y) due to improved loan pricing
YTD Nov-24 profits for major banks +7% y-y
- BRIS +22% y-y
- BBCA +14% y-y
- BMRI +5% y-y
- BBRI +4% y-y
- BBNI +4% y-y

On balance sheet, loan growth was up +13% y-y; +11% YTD Nov-24; for BMRI +21% y-y / +17% YTD Nov-24; for BBCA +15% y-y / +11% YTD Nov-24; for BBNI +11% y-y / +8% YTD Nov-24; for BBRI +5% y-y / +6% YTD Nov-24; and for BRIS +17% y-y / +14% YTD Nov-24. In terms of LLR, BBRI maintained at ~6.3% (down from 6.7% in Dec-23), followed by BBNI at ~5.5% (6.7%), BBCA at ~3.8% (4.2%), BRIS ~3.8% (4.1%) and BMRI at ~3.0% (3.2%).

On deposits, overall deposits were up +8% y-y / +4% YTD Nov-24; for BMRI +15% y-y / +10% YTD; for BRIS +13% (+3%); for BBRI +7% (+3%); for BBCA +3% (+3%); and for BBNI +7% (-2%). A closer examination shows that the more important Saving Deposits (than Current Account or Time deposits) still recorded healthy growth of +7% y-y (+5% YTD Nov-24) with BMRI posting the highest growth of +12% y-y (+11%) / BBNI +9% (+5%) / BBCA +4% (+4%) / BBRI +4% (+2%). These explain that among the major banks, BBCA / BMRI / BBRI show the most stable NIMs. Headline LDR for these banks remained at 89.4% in Nov-24 (a slight uptick from 84.1% in Dec-2023).

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 2.1x and 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 IDR5,400 based on DuPont analysis, with a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 9.3%, beta 0.8x and a CAR-adjusted ROAE of 18.0%. We have also used 2025F book as reference. The implied multiples at our TP would be 2.5x 2025F book and 13.1x 2025F earnings (compared to current multiples of 1.8x and 9.8x respectively). Risks are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition, which could increase funding costs, worsening credit quality which would raise credit costs, and higher opex. Changes in management may affect the bank’s write-off policies and, thus, credit costs. This would ultimately affect near term earnings for the bank.

BBNI — We derive our TP of IDR6,600 based on a 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 CARadjusted 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 — We derive our TP of IDR3,800 using 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 (compared to current multiples of FY25F P/B of 2.7x and a FY25F P/E of 17.8). 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.