Over the past year, major Indonesian banking stocks have faced selling pressure owing to several factors. In our view, one of these relates to concerns over liquidity, specifically funding costs. That said, we believe recent developments have been encouraging for the liquidity outlook. Bank Indonesia has played a positive role in the recent declines in SRBI rates – now at 6.38% (blended), down from a peak of 7.48% in Jul-24. The central bank has curtailed SRBI issuances too, which should support banking system liquidity. So far, these measures have helped stabilize funding costs (bank-only) at major banks. We believe these should also translate into stable NIMs, thus reducing downside risks to earnings due to lower margins.

Moreover, we think the recent decline in the blended SRBI rate to 6.38% (as of 14 Mar 2025) may reduce arbitrage opportunities (as compared to the repo rate of 6.50%). This could potentially provide room for further reductions in SRBI issuances as well as opportunities for the BI benchmark rate to continue to decline (from 5.75% at present). Furthermore, we see room for BI to cut reserve requirement from effectively at ~6-7% for major banks to ~3-4%; this could add liquidity to the banking system. Consequently, combined these could prove to be catalysts for major banking stocks. 

For these reasons, we think the Indonesian banking sector remains fundamentally resilient. Within the sector, major banks remain our preferred banking stocks. Our top picks are BMRI, BRIS and BBCA.

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 26.0x 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 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 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, and tighter liquidity competition (which would increase funding cost), and worsening credit quality (which would raise credit costs), and higher opex. We also want to highlight the upcoming shareholders’ meeting with main agenda of management changes.

BBRI – We derive our TP of IDR5,000 based on DuPont analysis with a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 9.3%, beta 0.85x and a CAR-adjusted ROAE of 18.0%. We have also used 2025F book as reference. The implied multiples at our TP would be 2.3x 2025F book and 12.5x 2025F earnings (compared to current multiples of 1.6x 2025F book and 9.3x 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 IDR6,250 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 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, unfavourable regulatory changes, and tighter liquidity competition (which would increase funding cost), and worsening credit quality (which would raise credit costs), and higher opex.

BRIS – 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 to derive our TP. Our TP implies an FY25F P/B of 2.7x and an FY25F P/E of 17.8x (compared to current multiples of 2.5x 2025F book and 16.2x 2025F earnings). 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: Stabilizing funding cost (bank only)

Fig. 2: Repo rate vs SRBI rate (%)

Fig. 3: Net spread with SRBI vs repo

Fig. 4: Blended SRBI yield %

Fig. 5: SRBI yield %

Fig. 6: Projected SRBI maturities in 1Q25F and 2Q25F

Fig. 7: Projected net liquidity

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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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).

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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)