YTD 7 Mar 2025, major Indonesia banks saw heavy selling pressure from foreign investors, with outflows of ~USD959mn, or ~83% of total net foreign selling in the market of ~USD1.2bn. Despite such selling pressures, from a tactical standpoint, we think major Indonesia banks are not out of the woods, as the near-term macroeconomic outlook remains challenging, in our view. Moreover, the GDP-to-loan growth multiplier, which essentially measures how much loan growth is driving GDP growth, is declining, as shown in Fig. 2 . We attribute this to more loans made to capital-intensive sectors as opposed to labor-intensive borrowing customers. Some of the capital-intensive sectors are related to mineral down-streaming and/or plantations. We also think that this could be due to some loan disbursement for acquisitions.

However, from a fundamental standpoint, major banks remain resilient. Indeed, these major banks remain fundamentally sound, in our view, albeit with some variations. Specifically, we think the corporate segment has outperformed the mass-market segment. The pandemic in 2020-2023 caused major banks (those that focus on the corporate segment) to considerably outperform smaller banks and those focused on the mass-market segment.

Fig. 4 -Fig. 7 compare profit/deposit/loan trends of the top 10 Indonesia banks over 2005/2010/2019/2024. Noticeably, we see a widening gap between key banks such as BMRI, BBCA and the rest of the sector. Within major banks, we see how the pandemic has driven BBCA/BMRI outperformances relative to their respective peers. We think these trends will persist, at least in the medium term. For non-major banks, BRIS has demonstrated its outperformance against its peers.

Nevertheless, over the near term, we see continued risk of foreign selling. As shown in Fig. 11, despite the large YTD net foreign selling, the ratio of foreign institutional-to-domestic institutional Indonesia bank shares holding was ~10x for BBCA, ~6x for BMRI and ~2x for BBRI YTD 7 March. On asset quality, we think there are still more clean-up risks in the mass-market segment than in the corporate segments.

Given the above, BBCA remains our preferred defensive banking stock.

Valuations and risks

BBCA — We derive our TP of IDR12,600 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 4.2x) and a FY25F P/E of 26.0x (vs current price valuation of 21.0x). Key downside risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

BMRI — We derive our TP of IDR7,600 based on a DuPont analysis, assuming a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 11.0%, beta 1.05x and a CAR-adjusted ROAE of 19.5%. We also use 2025F book as a reference. The implied multiples at our TP are 2.3x 2025F book and 12.4x 2025F earnings (compared to current multiples of 2.5x and 13.7x, respectively). Key risks to our view are worsening macroeconomic trends, unfavorable regulatory changes, tighter liquidity competition (which would increase funding costs), worsening credit quality (which would raise credit costs), and higher opex.

BBRI — Our TP of IDR5,000 is based on DuPont analysis, with a risk-free rate of 6.5%, an equity risk premium of 7.8%, ROE growth of 9.3%, a beta of 0.85x and a CAR-adjusted ROAE of 18.0%. We also use 2025F book value as a reference. The implied multiples at our TP are 2.3x 2025F BVPS and 12.5x 2025F EPS. Downside risks include worsening macroeconomic trends, unfavorable regulatory changes and tighter liquidity competition, which could increase funding costs. Changes in management may affect the bank’s write-off policies and thus, credit costs. This would ultimately affect the bank’s near-term earnings, in our view.

BBNI — We derive our TP of IDR6,250 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 a reference. The implied multiples at our TP are 1.3x 2025F book and 10.6x 2025F earnings (compared to current multiples of 1.0x and 8.1x, 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 3.4x and a FY25F P/E of 21.5x. 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: YTD 7 Mar 2025 Net foreign selling IDRbn

Fig. 2: Less loan growth multiplier (to GDP)

Fig. 3: Trends in asset ranking over time

Fig. 4: Trends in loan ranking over time

Fig. 5: Trends in deposit ranking over time

Fig. 6: Growing CASA shares for major banks

Fig. 7: Post-pandemic corporate lenders perform better

Fig. 8: Projected SRBI maturities in 1Q25F and 2Q25F

Fig. 9: Projected net liquidity

Fig. 10: Declining SRBI trends

Fig. 11: Foreign local investment ratio – IDX80

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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Erwin Wijaya (erwin.wijaya@verdhana.id)