We think the Indonesia banking sector may enter a tactical tailwind period, which could be a near-term catalyst for major banks. Specifically, we think the recent downtrend in blended SRBI rates to 6.442% (as of 14 Feb 2025) may reduce arbitrage opportunities (compared to 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). This could act as share price catalysts for major banking stocks. 

While broad liquidity in the banking system remains tight (given system LDR of >90%); typically, banks that have more fixed-rate earnings assets have benefited more from potentially stable if not marginally declining funding costs. Among major banks, we would expect both Bank Rakyat Indonesia (BBRI, Buy) and Bank Negara Indonesia (BBNI, Buy) to benefit more from stable (if not lower) funding costs given the fact that during upward rate upcycles they had the largest funding cost increases relative to Bank Central Asia (BBCA, Buy) and Bank Mandiri (BMRI, Buy). Consequently, we think both BBRI and BBNI could outperform in terms of their share prices. BBCA and BMRI share prices, too, should also benefit from these tactical tailwinds, in our opinion.

Inside, we have prepared several charts comparing the BI rate with blended SRBI rate, which now shows limited scope for arbitrage. With potentially further reduction in SRBI outstandings, it could potentially provide some liquidity releases to the banking sector. Ultimately, this could mitigate earnings risks (from credit costs) that may arise.

For these reasons, major banks continue to be our preferred banking stocks.

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. 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 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 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. 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: Repo rate vs SRBI rate (%)

Fig. 2: Net spread with SRBI (%) vs Repo (IDRtn)

Fig. 3: Blended SRBI yield %

Fig. 4: SRBI yield %

Fig. 5: Gross SRBI maturities (IDRbn)

Fig. 6: Net liquidity (IDRbn)

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)