Based on the latest SRBI issuances (dated 31 Jan 2025), we see some improvements in liquidity (albeit still tight). However, this is consistent with our thesis that we expect better earnings profiles for banks in general in 2025F. That is, funding costs may stabilize, giving room for stable NIMs (or possible improvements from upticks in lending rates). So far, blended lending rates have been trending higher, although the rise has been small (e.g. Bank Central Asia [BBCA IJ, Buy]).

Given the latest SRBI issuances, we highlight blended yields extended its downtrend to 6.715% on 31 Jan 2025, down from 7.253% on 27 Dec 2024 – refer to Fig. 2. We also see narrowing "arbitrage opportunities" as the difference between SRBI and Repo rates are now at ~20bp (6.715% - 6.500%).

Fig. 4 illustrates the latest projected net issuances or releases of SRBIs in 1Q25 and 2Q25. If we assume the upcoming weekly SRBI issuances stay at IDR15tr, liquidity injection should reach IDR58tr in 1Q25F.

Further out, regardless of BI’s policy rate directions, we argue that fundamentally, banks under our coverage should have a better earnings profile in 2025F than in 2024. Specifically, we highlight that loan growth guidance from these major banks points to slower growth in 2025F than in 2024, and that tight liquidity in the system should NOT worsen. In turn, we think we could see stable 2025F NIMs for these banks. Thus, unlike in 2024 when banks likely compensated lower NIMs with higher loan growth to keep earnings momentum, earnings growth in 2025F may slow down. This suggests less balance sheet risks for these banks in 2025F than in 2024F.

Fig. 8 shows the trends of monthly loan write-off rates for major banks, which we deem to be a leading indicator of a bank’s future asset quality. Based on our assessments for bank-only YTD Nov-24 results, we have seen some mixed write-off (WO) trends for these major banks. Generally, Bank Central Asia (BBCA IJ, Buy), Bank Mandiri (BMRI IJ, Buy), and Bank Syariah Indonesia (BRIS IJ, Buy) have demonstrated improvements in their respective WO trends.

Based on the above, we maintain our long-term Bullish view on the Indonesia banking sector with major banks continuing to be our preferred stocks.

Valuations and risks

BBCA — We derive our TP of IDR 12,600 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 4.0x) and 26.0x FY25F P/E (vs current price valuation of 19.3x). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

BMRI — We derive our TP of IDR8,700 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 20.0% and beta of 1.03x. We have also used 2025F book as reference. Our TP implies a 2.5x FY25F P/B and a 12.6x 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 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. 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. 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: SRBI yields %

Fig. 2: Blended SRBI yields %

Fig. 3: BBCA - Blended loan yields 1Q19-4Q24 %

Fig. 4: SRBI Issuance IDRbn

Fig. 5: Repo rate vs SRBI rate

Fig. 6: Gross SRBI maturities

Fig. 7: Net liquidity

Fig. 8: 12MMA WO trends 2021-Nov'24

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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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.

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Erwin Wijaya (erwin.wijaya@verdhana.id)